As Filed With the Securities and Exchange Commission on January 18, 2000
Registration No. 333-
- -----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
BIORELEASE CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 2836 88-0218411
(State or other (Primary Standard (I.R.S. Employer
jurisdication of incorpo- Industrial Classification Identification
ration or organization) Code No.) Number)
340 Granite Street, Suite 200,
Manchester, NH 03102
(603) 641-8443
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------------
R. Bruce Reeves
Biorelease Corp.
340 Granite Street, Suite 200,
Manchester, NH 03102
(603) 641-8443
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
Gary D. Bruhn, Esq. John Lowy, Esq.
Berry Moorman P.C. 645 Fifth Avenue
600 Woodbridge Suite 403
Detroit, MI 48226 New York, NY 10022
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effectiveness of this Registration Statement
and the effective time ("Effective Time") of the Merger (the "Merger") of
Polar Molecular Corporation ("PMC"), with and into Biorelease Corp.
("Biorelease"), as described in the Agreement and Plan of Merger dated as of
July 26, 1999.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
Title of Proposed Proposed
each class maximum maximum
of securities Amount offering aggregate Amount of
to be to be price offering registration
registered registered per unit (1) price (1) fee
- -----------------------------------------------------------------------------
Common Stock 13,620,000 (2) $.1175 (3) $1,600,350 $ 422.49
Common Stock 1,550,174 (4) $ 2.45 (5) $3,803,412 $ 1,002.65
Common Stock 1,666,667 (6) $ 3.00 (7) $5,000,000 $ 1,320.00
Common Stock 500,000 (8) $ 4.00 (9) $2,000,000 $ 528.00
----------
TOTAL $ 3,273.15
- -----------------------------------------------------------------------------
(1) Estimated solely for the purposes of calculating the
registration fee.
(2) Represents the maximum number of shares of common stock of
Biorelease (the "Biorelease common stock") issuable on consummation of the
Merger to the holders of common stock of PMC ("PMC common stock") and the
holders of options to purchase PMC common stock that have an exercise price
of less than $.20 per share of PMC common stock.
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act,
the registration fee was calculated based on $.1175, the average of the
closing bid and ask prices for shares of Biorelease common stock on the
Nasdaq OTCBB on January 12, 2000.
(4) Represents shares of Biorelease common stock issuable upon the
exercise of PMC stock options with an exercise price of at least $.20 per PMC
share that, as a result of the Merger, will be converted into options to
purchase these shares of Biorelease common stock.
(5) Represents the weighted average exercise price of these options.
(6) Represents shares of Biorelease common stock into which shares
of Biorelease Series A Convertible Preferred Stock may be converted. Pursuant
to the Merger, the Biorelease Series A Convertible Preferred Stock will be
issued to the holders of shares of PMC Series A Convertible Preferred Stock.
(7) The conversion price of the Biorelease Series A Convertible
Preferred Stock.
(8) Represents shares of Biorelease common stock issuable upon the
exercise of Biorelease Class A Common Stock Purchase Warrants. Pursuant to
the Merger, those warrants will be issued to the holders of the PMC Class A
Common Stock Purchase Warrants.
(9) Represents the exercise price of these Common Stock Purchase
Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
2
BIORELEASE CORP.
January __, 2000
To the Stockholders of Biorelease Corp.:
On July 26, 1999, Biorelease and Polar Molecular Corporation ("PMC") entered
into an Agreement and Plan of Merger (the "Merger Agreement") whereby PMC
will be merged into Biorelease. The Board of Directors of Biorelease is
seeking your vote for approval of this important transaction.
If the Merger is effected, PMC stockholders will become stockholders of
Biorelease and the name of Biorelease will be changed to "Polar Molecular
Corporation". As more fully set forth in the accompanying document, the
existing shareholders of PMC will receive approximately 91.5% of the then
outstanding shares of our common stock and various consultants that have
provided services to us in connection with the Merger will receive
approximately 5.2% of the then outstanding shares of our common stock.
Biorelease stockholders are being asked, at a special meeting of Biorelease's
stockholders, to approve: (i) the merger of PMC into Biorelease (the
"Merger") in accordance with the Merger Agreement, which would include
changing the name of Biorelease to "Polar Molecular Corporation" and the
issuance of shares of Biorelease common stock, preferred stock, stock options
and warrants to PMC stockholders and security holders in accordance with the
Merger Agreement; (ii) a proposal to amend Biorelease's certificate of
incorporation to authorize 1,000,000 shares of Preferred Stock (the "Charter
Amendment"); (iii) a proposal to reverse split the currently outstanding
shares of Biorelease common stock on a 1-for-25 basis (the "Reverse Stock
Split"); (iv) the election of certain persons selected by PMC (the "PMC
Nominees") to Biorelease's Board of Directors; and (v) such other business as
may properly come before the meeting or any postponement or adjournment
thereof. The approval of the Charter Amendment and the Reverse Stock Split
and the election of the PMC Nominees is contingent upon the approval of the
Merger by the Shareholders of both corporations.
THE BOARD OF DIRECTORS OF BIORELEASE HAS UNANIMOUSLY APPROVED THE MERGER, THE
CHARTER AMENDMENT, THE REVERSE STOCK SPLIT AND THE ELECTION OF THE PMC
NOMINEES AND RECOMMENDS A VOTE FOR APPROVAL OF THOSE PROPOSALS.
You can find the full text of the Merger Agreement at the back of this
document in Annex A.
Whether or not you plan to attend the special meeting, please take the time
to vote on the proposals submitted to Biorelease stockholders by completing
and mailing the enclosed proxy card. If you sign, date and mail your proxy
card without indicating how you wish to vote, your proxy will be counted as a
vote in favor of all of the proposals. If you fail to return a properly
executed proxy card, it will have the same effect as a vote against the
Merger, the Charter Amendment and the Reverse Stock Split. YOUR VOTE IS VERY
IMPORTANT.
The date, time and place of the Biorelease special meeting is February __,
2000, 11:00 a.m., Eastern time, at ___________________.
This document provides you with detailed information about the Merger and the
other proposals. We encourage you to read this entire document carefully.
Stockholders who have questions about the Merger and other proposals should
call Biorelease's Investor Relations Department at (603) 641-8443.
Sincerely,
/s/ R. Bruce Reeves,
--------------------------------
President
POLAR MOLECULAR CORPORATION
January __, 2000
To the Stockholders of Polar Molecular Corporation:
On July 26, 1999, Polar Molecular Corporation ("PMC") and Biorelease Corp.
("Biorelease") entered into an Agreement and Plan of Merger (the "Merger
Agreement") whereby PMC would be merged into Biorelease (the "Merger") and
the name of Biorelease would be changed to "Polar Molecular Corporation". The
Board of Directors of PMC is seeking your vote for approval of this important
transaction.
If the Merger is effected, PMC will no longer separately exist and the PMC
stockholders will become stockholders of Biorelease. As more fully set forth
in the accompanying document, the shares of PMC common stock will be
converted into shares of Biorelease common stock, the outstanding shares of
PMC preferred stock would be converted into shares of Biorelease preferred
stock and the existing options and warrants to purchase PMC common stock
would be converted into options and warrants to purchase Biorelease common
stock. As a result, the shareholders of PMC would receive approximately 91.5%
of the shares of Biorelease common stock that would be outstanding after the
Merger.
PMC stockholders are being asked, at a special meeting of PMC's stockholders,
to approve the terms of the Merger as provided in the Merger Agreement and
any other business as may properly come before the meeting or any
postponement or adjournment thereof.
THE BOARD OF DIRECTORS OF PMC HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER.
You can find the full text of the Merger Agreement at the back of this
document in Annex A.
Whether or not you plan to attend the special meeting, please take the time
to vote on the proposal submitted to PMC stockholders by completing and
mailing the enclosed proxy card. If you sign, date and mail your proxy card
without indicating how you wish to vote, your proxy will be counted as a vote
in favor of the Merger. If you fail to return a properly executed proxy card,
it will have the same effect as a vote against the Merger. YOUR VOTE IS VERY
IMPORTANT.
The date, time and place of the PMC special meeting is February __, 2000 at
9:00 a.m., Mountain time, at __________________.
This document provides you with detailed information about the Merger. We
encourage you to read this entire document carefully. Stockholders who have
questions about the Merger should call Mark Nelson, President of PMC, at
(303) 804-3804.
Sincerely,
/s/ Mark L. Nelson,
--------------------------------
Chairman and President
2
BIORELEASE CORP.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON FEBRUARY __, 2000
NOTICE IS HEREBY GIVEN, that a special meeting of the stockholders of
Biorelease Corp. ("Biorelease") will be held on February __, 2000 at
__________________________________, commencing at 11:00 a.m., Eastern time,
to consider the following:
o To approve the merger of Polar Molecular Corporation ("PMC") into
Biorelease (the "Merger") in accordance with the Agreement and Plan of
Merger dated July 26, 1999 between PMC and Biorelease (the "Merger
Agreement"), a copy of which is attached hereto as Annex A. As a result
of the Merger, Biorelease will be the surviving corporation but its
name will be changed to "Polar Molecular Corporation." The holders of
PMC common stock would receive shares of Biorelease common stock, the
holders of PMC Series A Preferred Stock would receive shares of
Biorelease Series A Preferred Stock and the holders of options and
warrants to purchase PMC common stock would receive options and
warrants to purchase shares of Biorelease common stock. Biorelease has
also agreed, if the Merger is approved, to issue shares of Biorelease
common stock to various consultants who have assisted Biorelease in
connection with the Merger. If all then outstanding options were
exercised and all authorized Series A Convertible Preferred Stock was
issued and converted into Biorelease common stock and all authorized
Class A Common Stock Purchase Warrants were issued and exercised, the
holders of the common stock, preferred stock, options and warrants of
PMC would own approximately 92.9% of the shares of Biorelease common
stock that would then be outstanding, those consultants would own
approximately 4.2% of those shares and the current shareholders and
option holders of Biorelease would own approximately 2.9% of those
shares.
o Subject to approval of the Merger by the shareholders of both
companies, to approve an amendment (the "Charter Amendment") to the
certificate of incorporation of Biorelease to authorize 1,000,000
shares of preferred stock.
o Subject to approval of the Merger by the shareholders of both
companies, to reverse split the outstanding shares of Biorelease common
stock on a 1-for-25 basis (the "Reverse Stock Split").
o Subject to approval of the Merger by the shareholders of both
companies, to elect to Biorelease's Board of Directors seven persons
(the "PMC Nominees") that have been selected by PMC. The existing
directors of PMC will resign, so that the PMC Nominees will be the only
directors.
o To transact such other business as may properly come before the special
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on December _________,
1999 as the record date (the "Record Date") for determination of the
stockholders entitled to notice of and to vote at the special meeting.
3
The approval of the Merger, the Charter Amendment and the Reverse Stock Split
will require the affirmative vote of the holders of a majority of the
outstanding shares of Biorelease common stock. The election of the PMC
Nominees will require them to receive more votes than any other persons
nominated for election as directors. The consummation of the Merger is
conditioned upon the approval of the Charter Amendment and the Reverse Stock
Split and election of the PMC Nominees.
Holders of Biorelease common stock will be entitled to appraisal rights in
connection with the Merger.
By action of the Board of Directors,
/S/ R. BRUCE REEVES
- --------------------------------
President and CEO
Manchester, N.H.
January __, 2000
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE BIORELEASE SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE, SO AS TO BE RECEIVED NO
LATER THAN FEBRUARY __, 2000. TO AVOID ADDITIONAL EXPENSE TO BIORELEASE, WE
ASK FOR YOUR COOPERATION IN PROMPTLY MAILING YOUR PROXY CARD.
4
POLAR MOLECULAR CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON February __, 2000
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Polar
Molecular Corporation ("PMC") will be held on February __, 2000, at
_____________________ located at ________________ ______________________,
commencing at 11:00 a.m., Eastern Standard time, to consider the following
matters:
o To approve the Merger (the "Merger") of Polar Molecular Corporation
into Biorelease Corp. ("Biorelease") in accordance with the Agreement
and Plan of Merger dated July 26, 1999 between PMC and Biorelease (the
"Merger Agreement"), a copy of which is attached hereto as Annex A. As
a result of the Merger, Biorelease will be the surviving corporation
but its name will be changed to "Polar Molecular Corporation." The
holders of PMC common stock would receive shares of Biorelease common
stock, the holders of PMC Series A Preferred Stock would receive shares
of Biorelease Series A Preferred Stock and the holders of options and
warrants to purchase PMC common stock would receive options and
warrants to purchase shares of Biorelease common stock. If all then
outstanding options were exercised and all authorized Series A
Convertible Preferred Stock was issued and converted into Biorelease
common stock and all authorized Class A Common Stock Purchase Warrants
were issued and exercised, the holders of the common stock, preferred
stock, options and warrants of PMC would own approximately 92.9% of the
shares of Biorelease common stock that would then be outstanding.
o To transact such other business as may properly come before the special
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on December ______,
1999 as the record date (the "Record Date") for determination of the
stockholders entitled to notice of and to vote at the special meeting.
The approval of the Merger will require the affirmative vote of the holders
of a majority of the shares of PMC common stock outstanding as of the Record
Date.
Holders of PMC common stock will be entitled to dissenters' rights under the
Utah Revised Business Corporation Act.
By action of the Board of Directors,
/s/ Mark L. Nelson
- --------------------------------
Chairman and President
Denver, Colorado
January __, 2000
5
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE PMC SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE, SO AS TO BE RECEIVED NO
LATER THAN FEBRUARY __, 2000. TO AVOID ADDITIONAL EXPENSE TO PMC, WE ASK FOR
YOUR COOPERATION IN PROMPTLY MAILING IN YOUR PROXY CARD.
6
SUBJECT TO COMPLETION DATED DECEMBER _, 1999
[PMC LOGO] [BIORELEASE LOGO]
BIORELEASE CORP. AND POLAR MOLECULAR CORPORATION
------------------------ JOINT PROXY STATEMENT ------------------------
BIORELEASE CORP. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common stock
of Biorelease Corp., a Delaware corporation ("Biorelease"), in connection
with a Special Meeting of Stockholders of Biorelease (the "Biorelease Special
Meeting") to be held on February __, 2000 at ________________ commencing at
11:00 a.m., Eastern time, and at any adjournment or postponement thereof.
This Proxy Statement/Prospectus is also being furnished to holders of common
stock of Polar Molecular Corporation, a Utah corporation ("PMC"), in
connection with the Special Meeting of Stockholders of PMC (the "PMC Special
Meeting") to be held on February __, 2000, at _____________, commencing at
11:00 a.m., Eastern time, and at any adjournment or postponement thereof.
The Biorelease Special Meeting and the PMC Special Meeting have been called
to consider and vote upon the proposals set forth in the attached notices of
those meetings. Those proposals relate to the approval of a proposed merger
of PMC into Biorelease. A copy of the Merger Agreement that sets forth the
terms and conditions of that proposed Merger is attached to this Proxy
Statement/Prospectus as Annex A and is incorporated herein by reference. In
addition to voting on the Merger, the stockholders of Biorelease will also be
asked to approve, subject to approval of the Merger, the authorization of
preferred stock (the "Charter Amendment"), a 1-for-25 Reverse Stock Split of
outstanding shares of Biorelease common stock (the "Reverse Stock Split") and
the election of certain persons designated by PMC (the "PMC Nominees") to the
Biorelease Board of Directors.
The Merger cannot be completed unless holders of a majority of the
outstanding shares of PMC common stock on the Record Date affirmatively vote
to approve the Merger and a majority of the outstanding shares of Biorelease
common stock on the Record Date affirmatively vote to approve the Merger, the
Charter Amendment and the Reverse Stock Split and the Biorelease stockholders
elect the PMC Nominees. Pursuant to the Merger Agreement, Biorelease would be
the surviving corporation but its name would then be changed to "Polar
Molecular Corporation". The effect of the Merger, the Charter Amendment, the
Reverse Stock Split and the election of the PMC Nominees is that the current
holders of PMC securities will effectively control Biorelease. See "Proposal
One-Approval of the Merger and Related Transactions-General."
The Board of Directors of both PMC and Biorelease have unanimously approved
the Merger and recommend a vote for approval of the proposals that the
stockholders of Biorelease and PMC are being asked to approve.
7
Your approval of the Merger is equivalent to a purchase of securities of the
combined companies. This involves a high degree of risk. See "Risk Factors,"
beginning on page __.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
document is truthful or complete. Any representation to the contrary is a
criminal offense
Biorelease common stock is listed on the OTC Bulletin Board ("OTCBB") under
the symbol "BRLZ." PMC common stock is not publicly traded.
This document gives you detailed information about the proposed Merger. We
encourage you to read this entire document carefully. Please see "Where You
Can Find More Information" on page ___ for additional information about
Biorelease on file with the Securities and Exchange Commission.
This Proxy Statement/Prospectus and the accompanying forms of proxy are first
being mailed to Biorelease and PMC stockholders on or about January __, 2000.
8
WHERE YOU CAN FIND MORE INFORMATION
Biorelease files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy any reports, statements or other
information filed by Biorelease at the Commission's public reference rooms in
Washington, D.C., New York City and Chicago. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms.
Biorelease's filings are also available to the public from commercial
document retrieval services and at the Internet web site maintained by the
Commission at http://www.sec.gov.
Biorelease filed a Registration Statement on Form S-4 (the "Registration
Statement") to register with the Commission the Biorelease common stock to be
issued to PMC stockholders in the Merger . This Proxy Statement/Prospectus is
a part of that Registration Statement and constitutes a prospectus of
Biorelease in addition to being a proxy statement of Biorelease for the
Biorelease Special Meeting and a proxy statement of PMC for the PMC Special
Meeting. As allowed by the Commission's rules, this Proxy
Statement/Prospectus does not contain all of the information you can find in
the Registration Statement or the exhibits to the Registration Statement.
This Proxy Statement/Prospectus summarizes some of the documents that are
exhibits to the Registration Statement, and you should refer to the exhibits
for a more complete description of the matters covered by those documents.
Biorelease has also filed a Registration Statement on Form S-1 (the "Spinoff
Registration Statement") to register with the Commission the shares of
capital stock of Biorelease's operating subsidiary, Biorelease Technologies,
Inc. ("BTI"), that it intends to distribute to the shareholders of
Biorelease. The prospectus contained in the Spinoff Registration Statement
contains information about the business and financial condition of BTI. That
prospectus will be distributed to the shareholders of Biorelease and will be
provided to any shareholder of PMC who desires one.
Biorelease has supplied all information contained in this Proxy
Statement/Prospectus relating to Biorelease and PMC has supplied all such
information relating to PMC.
Neither Biorelease nor PMC has authorized anyone to give any information
regarding the solicitation of proxies or the offering of shares of Biorelease
common stock that is different from what is contained in this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus is not an offer to sell
or a solicitation of anyone to whom it would be unlawful to make an offer of
solicitation. You should not assume that the information contained in this
Proxy Statement/Prospectus is accurate as of any time after the date of this
Proxy Statement/ Prospectus, and neither the mailing of this Proxy
Statement/Prospectus to PMC stockholders or Biorelease stockholders nor the
issuance of Biorelease common stock in the Merger should create any
implication to the contrary.
9
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION..........................................9
SUMMARY.....................................................................15
The Companies (Pages __ and ___)........................................15
The Merger (Page __)....................................................16
The Results of the Merger, Charter Amendment, Reverse Stock
Split and Election of the PMC Nominees................................16
What PMC Stockholders Will Receive in the Merger (Page __)..............18
Risks of the Merger (Page __)...........................................18
The PMC Special Meeting (Page __).......................................18
The Biorelease Special Meeting (Page __)................................18
Record Date for Voting..................................................18
Stockholder Vote Required to Approve the Merger (Page __)...............19
Reasons for the Merger; Recommendation to PMC Stockholders (Page __)....19
Conditions to the Merger (Page __)......................................19
Termination of the Merger Agreement (Page __)...........................19
Regulatory Approvals (Page __)..........................................20
Accounting Treatment (Page __)..........................................20
Important Federal Income Tax Consequences (Page __).....................20
Appraisal Rights (Page __)..............................................20
Comparative Per Share Data and Market Price Information
(Pages ___ And ___)...................................................20
Forward-Looking Statements May Prove Inaccurate.........................20
Who Can Help Answer Your Questions......................................21
Summary Historical Consolidated Financial Data..........................21
Biorelease..............................................................22
PMC.....................................................................22
RISK FACTORS................................................................22
Risks Related to the Merger.............................................23
Fixed Exchange Ratio.................................................23
No Assurance of Market for Common Stock..............................23
Volatility of Stock Prices...........................................23
Market Restrictions on Broker-Dealers................................24
Listing on NASDAQ Small Cap Market...................................24
Tax Consequences.....................................................24
Risks Relating to Biorelease............................................25
Biorelease's Independent Auditors Expressed Doubt Over
Biorelease's Ability to Continue as a Going Concern................25
Risks Relating to PMC...................................................25
PMC's Independent Auditors Expressed Doubt Over PMC's Ability
to Continue as a Going Concern.....................................25
Limited Operating History; Cumulative Net Loss.......................25
Additional Financing.................................................26
Competition..........................................................26
Proprietary Rights; Risks of Infringement............................26
Dependence on Outside Contractors....................................27
Possible Shortage of Chemical Supplies...............................27
10
Dependence on Management.............................................27
Control by Management................................................27
Non-Arm's Length Transactions........................................28
MARKET PRICE AND DIVIDEND INFORMATION.......................................28
Biorelease..............................................................28
PMC.....................................................................29
Stockholders............................................................29
Dividends...............................................................29
THE PMC SPECIAL MEETING.....................................................29
General.................................................................29
Record Date and Outstanding Shares......................................30
Voting of Proxies.......................................................30
Quorum Required.........................................................31
Vote Required...........................................................31
Abstentions; Broker Non-Votes...........................................31
Solicitation of Proxies and Expenses....................................32
THE BIORELEASE SPECIAL MEETING..............................................32
General.................................................................32
Record Date and Outstanding Shares......................................33
Voting of Proxies.......................................................33
Quorum Required.........................................................34
Vote Required...........................................................34
Abstentions; Broker Non-Votes...........................................34
Solicitation of Proxies and Expenses....................................35
PROPOSAL ONE - APPROVAL OF THE MERGER AND RELATED TRANSACTIONS.............35
General.................................................................35
Background of the Merger................................................37
Reasons for the Merger..................................................38
Biorelease's Reasons for the Merger.....................................39
PMC's Reasons for the Merger............................................39
Recommendation of the PMC Board.........................................39
Recommendation of the Biorelease Board..................................40
Interests of Certain Persons in the Merger..............................40
Certain Federal Income Tax Considerations...............................40
Appraisal Rights for PMC Shareholders...................................42
Appraisal Rights for Biorelease Shareholders............................43
Effective Time..........................................................46
Conversion of Shares of PMC Common Stock in the Merger..................46
Conversion of Shares of PMC Series A Convertible Preferred
Stock in the Merger...................................................47
Assumption of Stock Options and Warrants................................47
Representations and Warranties..........................................47
Conduct of Biorelease's and PMC's Business Prior to the Merger..........48
Conditions To The Merger................................................48
Termination of the Merger Agreement.....................................50
Fees and Expenses.......................................................51
Accounting Treatment....................................................52
11
Restrictions on Resale of Biorelease Common Stock.......................52
DESCRIPTION OF BIORELEASE CAPITAL STOCK.....................................52
Common Stock............................................................52
Preferred Stock.........................................................53
Effect of Delaware Antitakeover Statute.................................53
Transfer Agent..........................................................53
DESCRIPTION OF PMC CAPITAL STOCK............................................53
Common Stock............................................................53
Preferred Stock.........................................................54
Series A Convertible Preferred Stock....................................54
General..............................................................54
Rank.................................................................54
Dividends Payable in Cash and Restricted Stock.......................55
Preference on Liquidation............................................56
Voting...............................................................56
Redemption by the Company............................................56
Conversion...........................................................56
Warrants................................................................57
General..............................................................57
Exercise Price and Period............................................57
Restricted Shares and Registration Rights............................58
Dividend Policy.........................................................58
Transfer Agent and Registrar............................................58
COMPARATIVE RIGHTS OF STOCKHOLDERS OF PMC AND BIORELEASE....................58
The Charters and Bylaws of PMC and Biorelease...........................58
Certain Differences Between Delaware and Utah Corporation Law...........59
BIORELEASE STOCK OWNERSHIp..................................................63
Beneficial Ownership....................................................64
PMC STOCK OWNERSHIp.........................................................65
HISTORICAL FINANCIAL INFORMATION............................................68
Selected Financial Information of Biorelease............................68
Biorelease Management's Discussion and Analysis of Financial
Condition and Results of Operations................................69
Results of Operations - General......................................69
Year Ended June 30, 1999 Compared to the Year Ended June 30, 1998....70
Liquidity and Capital Resources......................................71
Effect of Inflation..................................................71
Biorelease's Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures...............................71
Selected Financial Information of PMC...................................71
PMC Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................72
Liquidity and Capital Resources......................................72
Results of Operations - Years ended March 31, 1998 and 1999..........73
Results of Operations -Six Months Ended September 30,
1998 and 1999......................................................74
Year 2000............................................................74
12
PRO FORMA COMBINED FINANCIAL INFORMATION....................................75
BUSINESS OF BIORELEASE......................................................79
General.................................................................79
BUSINESS OF PMC.............................................................79
General.................................................................80
Background..............................................................80
Industry and Product Background.........................................81
Octane Numbers and Octane Requirement Increase.......................81
Phase Out of Lead as a Fuel Additive.................................81
Other Regulatory and Market Trends...................................82
Products................................................................83
DurAlt(R)Fuel Conditioner............................................83
DurAlt(R)Concentrated Fuel Conditioner...............................84
DuraFlo(R)...........................................................84
DuraSta(R)...........................................................85
DuraKleen............................................................85
Marketing...............................................................85
Production..............................................................88
Patents & Trademarks....................................................88
Competition.............................................................88
Employees...............................................................89
PMC MANAGEMENT..............................................................89
Directors and Executive Officers........................................89
Board Compensation......................................................92
Board Committees and Corporate Governance...............................92
Executive Compensation..................................................92
Employee Stock Option Plan..............................................94
Indemnification of Directors and Officers...............................95
PMC Certain Transactions................................................96
Patent Assignments and License.......................................96
Other Stock Options..................................................97
PROPOSAL TWO -- APPROVAL OF THE CHARTER AMENDMENT TO AUTHORIZE
1,000,000 SHARES OF PREFERRED STOCK.......................................98
General.................................................................98
Effect on Common Stock..................................................99
Authorization of Series A Convertible Preferred Stock..................100
General.............................................................100
Rank................................................................100
Dividends Payable in Cash and Restricted Stock......................100
Preference on Liquidation...........................................101
Voting..............................................................101
Redemption by Biorelease............................................102
Conversion..........................................................102
Registration Rights.................................................102
Authorization of "Blank Check"Preferred Stock..........................103
Vote Required and Effective Date.......................................103
13
Recommendation.........................................................104
PROPOSAL THREE - ADOPTION OF THE REVERSE STOCK SPLIT.......................104
General................................................................104
Reasons for the Reverse Stock Split Amendment..........................104
Potential Effects of the Reverse Stock Split...........................105
Shares of Common Stock Issued and Outstanding or Held as
Treasury Shares......................................................105
Increase of Shares of Common Stock Available for Future Issuance.......106
Effectiveness of the Reverse Stock Split...............................106
Fractional Shares......................................................107
Certain Federal Income Tax Consequences................................107
No Appraisal Rights....................................................107
Recommendation of the Board of Directors...............................107
PROPOSAL FOUR - ELECTION OF PMC NOMINEES...................................108
Information Concerning Nominees........................................108
Recommendation.........................................................108
LEGAL MATTERS..............................................................108
EXPERTS....................................................................108
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................110
ANNEX A - RESTATED AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG
BIORELEASE CORP AND POLAR MOLECULAR CORPORATION, DATED AS OF JULY 26, 1999
ANNEX B - PART 13 OF THE UTAH REVISED BUSINESS CORPORATION ACT REGARDING
APPRAISAL RIGHTS OF PMC SHAREHOLDERS
ANNEX C - SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW REGARDING
APPRAISAL RIGHTS OF BIORELEASE SHAREHOLDERS
ANNEX D - FORM OF CHARTER AMENDMENT
14
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
proposed Merger fully and for a more complete description of the terms of the
proposed Merger, you should carefully read the entire document and the
documents we have referred you to. See "Where You Can Find More Information"
(page __). The Merger Agreement is attached as Annex A to this document. We
encourage you to read the Merger Agreement. It is the legal document that
governs the proposed Merger.
The Companies (Pages __ and ___)
Biorelease Corporation
304 Granite St., Suite 200
Manchester, N.H. 03102-4004
(603) 641-8443
Biorelease is currently engaged, on a limited basis through its subsidiary,
Biorelease Technologies, Inc. ("BTI"), in the development and licensing of
biotechnology-related products. The only business carried out by Biorelease
is the limited business conducted by BTI. Prior to the effective date of the
Merger, Biorelease will distribute to its shareholders all of its capital
stock of BTI. As a result, Biorelease will not have any operating business as
of the effective date of the Merger.
Because Biorelease will not have any operating business as of the effective
date of the Merger, a description of the current business of Biorelease is
not contained herein. Biorelease has filed a registration statement with the
Securities and Exchange Commission with respect to its plan to distribute the
shares of its operating subsidiary, BTI, to the persons who were shareholders
of Biorelease prior to the Merger. That registration statement contains
information regarding the business of BTI. The prospectus contained in that
Registration Statement will be distributed to all of the Biorelease
shareholders before the Biorelease Special Meeting. Any shareholder of PMC
who desires a copy of that prospectus with information about the business of
BTI may obtain one by contacting Biorelease or by viewing it on the
Commission's website at www.sec.gov.
Polar Molecular Corporation
4600 S. Ulster Street, Suite 700
Denver, Colorado 80237
Tele: (303) 804-3804
PMC develops and markets fuel additives. PMC's primary product, DurAlt(R) FC,
is a fuel additive that has been widely tested for both performance and
environmental impact over the past 10 years by independent laboratories,
major oil companies and major engine manufacturers. DurAlt(R) FC has been
shown to enhance fuel combustion efficiency, reduce octane requirement
increase ("ORI") and thereby enable engines to run properly on lower octane
fuel that has been treated with DurAlt(R) FC. The phasing out of the use of
MTBE as a smog-fighting additive has recently been discussed by EPA, the
State of California and others. MTBE, which is used in U.S. motor gasolines
at 5 to 15% by volume, is also used as an octane booster. PMC believes
15
that the potential elimination of MTBE from the available "octane pool"
represents an important market opportunity for PMC's DurAlt(R) FC technology.
Industry leaders are now taking the position in private and industry
discussions that the use of ORI (octane requirement increase) control
additives such as DurAlt(R) FC represents the next frontier of additive
technology to address issues related to the available octane pool and
greenhouse gas reduction through improvement in fuel economy.
The Merger (Page __)
Biorelease and PMC have entered into the Merger Agreement, a copy of which is
attached as Annex A at the back of this Proxy Statement/Prospectus. Pursuant
to the Merger Agreement, PMC will be merged into Biorelease and Biorelease
would then change its name to "Polar Molecular Corporation". We encourage you
to read the Merger Agreement because it is the legal document that governs
the proposed Merger.
The Results of the Merger, Charter Amendment, Reverse Stock Split and
Election of the PMC Nominees
In order for the Merger to be completed, it must be approved by the
shareholders of PMC and the shareholders of Biorelease and the Biorelease
shareholders must also adopt the Charter Amendment and the Reverse Stock
Split and elect the PMC Nominees. In addition, Biorelease has agreed, if the
Merger is completed, to issue a total of 780,000 post-reverse split shares of
Biorelease common stock (the "Consultant Shares") to certain persons who have
assisted Biorelease and PMC in connection with the Merger. All of the
proposals to be voted upon by the shareholders of both companies and the
issuance of the Consultant Shares can therefore be viewed as parts of a
single, larger transaction that would result in the following:
o Biorelease will be the surviving corporation in the Merger. The
separate existence of PMC will terminate and all of its assets and
liabilities will become assets and liabilities of Biorelease.
o The name of Biorelease will be changed to "Polar Molecular
Corporation". To reduce confusion, we will continue to refer to the
surviving corporation as Biorelease in this document, even though it
will then be called "Polar Molecular Corporation."
o The existing Biorelease Certificate of Incorporation, amended as
provided herein, will continue as the Certificate of Incorporation of
Biorelease after the Merger. The existing Bylaws of Biorelease will
continue as the Bylaws of Biorelease after the Merger.
o As a result of the Charter Amendment, the Certificate of Incorporation
of Biorelease will be amended to authorize the issuance of a total of
1,000,000 shares of preferred stock, including 100,000 shares of Series
A Convertible Preferred Stock that will be issued to the holders of the
existing PMC Series A Convertible Preferred Stock as part of the
Merger.
o As a result of the Reverse Stock Split, the Pre-Merger holders of
Biorelease common stock will receive one share of Post-Merger
Biorelease common stock for each 25 shares of
16
Biorelease common stock owned by them. The existing shareholders of
Biorelease will therefore receive, in the aggregate, approximately
484,970 shares of Post-Merger Biorelease common stock. That will be
approximately 3.3% of the shares of common stock that will then be
outstanding and approximately 2.6% of the shares of common stock that
would then be outstanding if all options and warrants were exercised
and all authorized shares of Series A Convertible Preferred Stock were
issued and converted into common stock.
o Each outstanding share of PMC common stock (with all shares of PMC
common stock issuable upon the exercise of options with an exercise
price of less than $.20 per share deemed to be outstanding) will be
converted into the right to receive approximately 0 .150 of a share of
Post-Merger Biorelease common stock (the "Exchange Ratio"), with
fractional shares rounded to the nearest whole share. The existing
shareholders of PMC (including the holders of those options) will
therefore receive, in the aggregate, 13,620,000 shares of Post-Merger
Biorelease common stock. That will be approximately 91.5% of the shares
of common stock that will then be outstanding and approximately 73% of
the shares of common stock that would then be outstanding if all
options and warrants were exercised and all authorized shares of Series
A Convertible Preferred Stock were issued and converted into common
stock.
o The persons who receive the Consultant Shares will receive, in the
aggregate, 780,000 shares of Post-Merger Biorelease common stock. That
will be approximately 5.2% of the shares of common stock that will then
be outstanding and approximately 4.2% of the shares of common stock
that would then be outstanding if all options and warrants were
exercised and all authorized shares of Series A Convertible Preferred
Stock were issued and converted into common stock.
o Each outstanding share of PMC Series A Convertible Preferred Stock will
be converted into one share of Biorelease Series A Convertible
Preferred Stock. The terms of the Biorelease Series A Convertible
Preferred Stock is identical to the terms of the PMC Series A
Convertible Preferred Stock that is being exchanged, with appropriate
changes, based on the exchange ratio, in the number of shares issuable
upon conversion of that Series A Preferred Stock.
o Each outstanding option or warrant to purchase PMC common stock (each a
"PMC Option" or a "PMC Warrant") will be assumed by Biorelease and
converted into an option or warrant to acquire the number of shares of
Biorelease common stock as the holder would have been entitled to
receive had the holder exercised that PMC Option or PMC Warrant in full
immediately prior to the Merger.
o As the result of the election of the PMC Nominees and the resignation
of the current Biorelease directors, the Board of Directors of
Biorelease will consist of persons that have been selected by the
current management of PMC. The current officers and directors of
Biorelease will no longer be involved in the management of Biorelease
after the Merger and will be replaced by persons selected by the PMC
Nominees.
17
o Separately, but as an integral part of the Merger, Biorelease will
distribute all of BTI's capital stock to those persons who were
shareholders of Biorelease before the Merger. As a result, Biorelease
will no longer have any interest in the business that it currently
conducts through BTI. The only business to be carried on by Biorelease
after the Merger will be the business of PMC.
What PMC Stockholders Will Receive in the Merger (Page __)
Upon completion of the Merger, Biorelease will issue to PMC stockholders
approximately 0 .150 shares of Biorelease common stock for each share of PMC
common stock that they own. PMC common stockholders will not receive
fractional shares. Instead, any fractional shares to which they would be
entitled would be rounded to the nearest whole share. Each holder of shares
of PMC Series A Preferred Stock will receive one share of Biorelease Series A
Preferred stock for each share of PMC Series A Preferred Stock owned by you.
DO NOT SEND IN YOUR STOCK CERTIFICATES NOW. WHEN THE MERGER IS COMPLETED,
BIORELEASE WILL SEND YOU WRITTEN INSTRUCTIONS FOR EXCHANGING YOUR STOCK
CERTIFICATES.
Risks of the Merger (Page __)
In considering whether to approve the Merger, you should consider all of the
risks of the Merger, including the possibility that no market will develop
and that, if one develops, there may be fluctuations in the market price of
Biorelease common stock. WE ENCOURAGE YOU TO READ ALL OF THE RISKS SET FORTH
IN THIS PROXY STATEMENT/ PROSPECTUS BEGINNING ON PAGE __.
The PMC Special Meeting (Page __)
PMC will hold a special meeting of stockholders on __________, February __,
2000 at 9:00 a.m. at ________________________________________. At the special
meeting, PMC stockholders will be asked to approve the Merger.
The Biorelease Special Meeting (Page __)
Biorelease will hold a special meeting of stockholders on __________,
February __, 2000 at 9:00 a.m. at ________________________________________.
At the special meeting, Biorelease stockholders will be asked to approve the
Merger and, subject to the approval of the Merger by the Biorelease
shareholders and the PMC shareholders, the approval of the Charter Amendment,
the Reverse Stock Split and the election of the PMC Nominees.
Record Date for Voting
You are entitled to vote at the PMC Special Meeting if you owned shares of
PMC common stock as of the close of business on December __, 1999. You are
entitled to vote at the Biorelease special meeting if you owned shares of
Biorelease common stock as of the close of business on
18
December __, 1999. On that date, there were _____ shares of PMC common stock
outstanding and __________ shares of Biorelease common stock outstanding.
Stockholders will have one vote at the special meeting for each share of
common stock they owned on the record date.
Stockholder Vote Required to Approve the Merger (Page __)
The affirmative vote of the holders of a majority of the outstanding shares
of PMC common stock and of Biorelease common stock is required to approve the
Merger. Therefore, your abstention or failure to vote will have the effect of
a vote against the Merger. Holders of PMC Series A Preferred Stock do not
have the right to vote on the Merger.
Reasons for the Merger; Recommendation to PMC Stockholders (Page __)
The Board of Directors of PMC and of Biorelease have determined that the
terms of the Merger and the Merger Agreement are in the best interests of
PMC, Biorelease and their stockholders.
In reaching its decision, the PMC board of directors believed that the Merger
would benefit PMC and its shareholders by providing a basis for the creation
of a public market for the common stock of the post-merger company and that,
if such a public market develops and is maintained, then its existence would
increase shareholder liquidity and enable PMC to use shares of common stock
to attract and retain qualified employees and sell shares of common stock to
obtain additional funds that will be required to expand its business.
The board of directors of Biorelease believe that the Merger will benefit
Biorelease and its shareholders by enabling them to participate in an
operating business with growth potential.
However, the PMC and the Biorelease boards of directors also recognized that
the potential benefits of the Merger may not be realized and that there are a
number of other risks related to the Merger. See "Risk Factors--Risks Related
to the Merger" at page __.
THE BOARD OF DIRECTORS OF BOTH PMC AND BIORELEASE RECOMMEND THAT YOU VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
Conditions to the Merger (Page __)
The Merger will not be completed unless the conditions contained in the
Merger Agreement are met, including the approval of the Merger by the
stockholders of PMC and Biorelease, the approval of the Charter Amendment and
Reverse Stock Split by the shareholders of Biorelease and the election of the
PMC Nominees.
Some of these conditions may be waived by the company entitled to assert the
condition.
Termination of the Merger Agreement (Page __)
PMC and Biorelease may together agree to terminate the Merger Agreement
without completing the Merger. This is the case whether or not the PMC and/or
Biorelease stockholders have approved the Merger Agreement. In addition,
either company may terminate the Merger
19
Agreement if the Merger is not completed on or before March 31, 2000 or if
specified events occur before that date.
Regulatory Approvals (Page __)
No federal or state regulatory requirements, other than securities laws and
regulations, must be complied with or federal or state approval obtained in
connection with the Merger, other than the filing of articles of merger with
the Secretary of State of Utah and the Secretary of State at Delaware after a
favorable vote is obtained on the proposed Merger.
Accounting Treatment (Page __)
PMC and Biorelease intend the Merger to be accounted for as a purchase.
Important Federal Income Tax Consequences (Page __)
PMC and Biorelease intend the exchange of PMC common stock for Biorelease
common stock (other than cash paid for fractional shares) and the exchange of
PMC Series A Preferred Stock for Biorelease Series A Preferred Stock to be
tax-free to PMC stockholders for federal income tax purposes.
Tax matters are very complicated and the tax consequences to you from the
Merger will depend on your own circumstances. You should consult your tax
advisors for a full understanding of all of the tax consequences to you from
the Merger.
Appraisal Rights (Page __)
Under Delaware law, Biorelease stockholders have the right to object to the
Merger and be paid cash for their shares in an amount determined in
accordance with Delaware law.
Under Utah law, PMC shareholders will also have the right to object to the
Merger and be paid cash for their shares in an amount determined in
accordance with Utah law.
Comparative Per Share Data and Market Price Information (Pages ___ And ___)
The shares of PMC Common stock are not publicly traded. Shares of Biorelease
common stock are quoted on the OTC Electronic Bulletin Board ("OTCBB"). On
July 29, 1999, the last trading day before the announcement of the proposed
Merger, Biorelease common stock had a bid price of $.016 per share. On
January __, 2000, the latest practicable trading day before the printing of
this Proxy Statement/Prospectus, Biorelease common stock had a bid price of
$_____ per share.
Forward-Looking Statements May Prove Inaccurate
This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate to
expectations concerning matters that are not historical facts and are
therefore subject to risks and uncertainties. When we
20
use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Although each of
Biorelease and PMC believes that the expectations reflected in such
forward-looking statements are reasonable, neither can give any assurance
that such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from such expectations
("Cautionary Statements") are disclosed herein and therein, including,
without limitation in conjunction with the forward-looking statements
included under "Risk Factors." All forward-looking statements attributable to
Biorelease are expressly qualified in their entirety by the Cautionary
Statements described herein. All forward-looking statements attributable to
PMC are expressly qualified in their entirety by the Cautionary Statements
described herein.
Who Can Help Answer Your Questions
If you have questions about the Merger you should contact:
Biorelease Investor Relations PMC Investor Relations
Biorelease Corp. Polar Molecular Corporation
340 Granite Street, Suite 200 4600 S. Ulster Street, Suite 700
Manchester, NH 03102 Denver, Colorado 80237
(603) 641-8443 (303) 804-3804
ATTN: R. Bruce Reeves ATTN: Mark L. Nelson
Summary Historical Consolidated Financial Data
The following tables summarize selected financial data of Biorelease and PMC,
Biorelease derived its information from the audited financial statements of
Biorelease for the years ended June 30, 1999 and 1998 and the unaudited
financial statements for the three months ended September 30, 1999. PMC
derived its information from the audited financial statements of PMC for the
years ended March 31, 1999 and 1998 and the unaudited statement of operations
for the six months ended September 30, 1999. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which Biorelease and PMC consider necessary for a fair presentation of their
respective financial positions and results of operations for these periods.
Operating results of PMC for the six months ended September 30, 1999 are not
necessarily indicative of results that may be expected for the entire year
ending March 31, 2000 or any other period. This information is only a summary
and should be read in conjunction with each company's historical consolidated
financial statements (and related notes) contained in this document.
21
<TABLE>
<CAPTION>
Biorelease
Fiscal Year Ended June 30, 3 Months Ended September 30
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Income:
Total Revenues $ 11,630 $ 62,825 $ -- $ 3,130
Gross Profit 8,812 60,784 -- 2,953
Operating Expenses 22,794 63,117 5,637 13,533
Other (Income) Expenses (326,731) 9,935 -- 1,574
Net Income (Loss) 312,749 (12,268) (5,637) (12,154)
(Unaudited)
June 30 September 30
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 10,778 $(253,664) $ 6,471 $(261,086)
Total Assets 33,653 60,674 23,731 56,836
Total Liabilities 25,020 401,307 19,768 409,623
Stockholders' Equity (Deficit) 8,633 (340,633) 3,963 (352,787)
<CAPTION>
PMC
Fiscal Year Ended March 31, 6 Months Ended September 30
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Income:
Sales $ 182,130 $ 306,999 $ 56,367 $ 70,085
Gross Profit 120,779 243,937 33,237 32,973
Selling, General and
Administrative Expenses 1,114,742 1,272,651 585,280 609,432
Non-Recurring, Non-Cash Exp 3,419,205 66,825 1,189,225
Other (Income) Expenses 203,496 217,688 13,207 34,439
Net Income (Loss) (4,616,664) (1,313,227) (1,754,475) (610,898)
March 31 September 30
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital (Deficit) (2,099,116) (1,134,840) (1,809,665) (2,157,910)
Total Assets 291,703 358,804 354,212 344,642
Total Liabilities 2,224,165 1,993,332 2,022,720 2,269,418
Stockholders' Equity (Deficit) (1,932,462) (1,634,528) (1,668,508) (1,924,776)
</TABLE>
RISK FACTORS
You should carefully consider the risks described below before voting on the
Merger and related proposals. The risks and uncertainties described below are
not the only ones facing PMC and Biorelease. Additional risks and
uncertainties not presently known to us or that we do not believe are
important to an investor making a decision whether to invest in the
securities of our combined companies may also harm our business operations.
22
If any of the following risks actually occur, our business, financial
condition or results of operations could be seriously harmed. In such case,
the trading price of Biorelease common stock could decline, and you may lose
all or part of your investment.
This Prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in
this Prospectus.
Risks Related to the Merger
Fixed Exchange Ratio
In the Merger, Biorelease will exchange approximately 0 .150 of a share of
Biorelease common stock for each outstanding share of PMC common stock (for
purposes of that computation, all shares of PMC common stock that are
issuable upon the exercise of options with an exercise price of less than
$.20 per share are deemed to be outstanding). The exchange ratio is fixed and
will not change if the market price of Biorelease common stock changes. As a
result, PMC's stockholders will not be compensated if the market price of
Biorelease common stock decreases before the Merger. If the market price of
Biorelease common stock declines before the Merger, including the period
between the Special Meetings and the closing of the Merger, the market value
of the Biorelease common stock to be received by PMC's stockholders also
would decline. You should obtain recent market quotations for Biorelease
common stock because those shares have historically been subject to
substantial volatility.
No Assurance of Market for Common Stock
Although the Biorelease common stock is currently traded on the OTCBB, there
is only a limited market for those shares and there is no assurance that an
active market for those shares will develop after the Merger or that, if one
develops, that it will be maintained. It is likely that any market that
develops will be highly volatile and that the trading volume may be limited.
Volatility of Stock Prices
The market price of Biorelease common stock may fluctuate significantly
before and after the Merger. A number of factors could affect the market
price of the Biorelease common stock before and after the Merger, including:
- Revenue or income below analysts' expectations;
- Quarterly fluctuations in financial results;
- General business conditions in the fuel additive industry;
- Changes in prices for products of PMC or its competitors;
- Changes in revenue growth rates for PMC or its competitors;
23
- Sales of large blocks of Biorelease common stock; and
- Conditions in the financial markets in general and smaller
companies in particular, whose stock may experience extreme price
and volume fluctuations without regard to operating performance.
Market Restrictions on Broker-Dealers.
The Biorelease common stock is covered by SEC Rule 15-g that imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5 million or
individuals with net worth in excess of $1 million or annual income exceeding
$200,000 or $300,000 jointly with their spouse). For transactions covered by
the rule, the broker-dealer must make a special suitability determination for
the purchaser and receive the purchaser's written agreement to the
transaction prior to the sale. Consequently, the rule may affect the ability
of broker-dealers to sell Biorelease common stock and also may affect the
ability of persons receiving shares of Biorelease common stock to sell them
in the secondary market. Further, Biorelease's common stock, after the
Merger, will initially continue to be quoted on the OTCBB rather than on
NASDAQ or an exchange, and may not be expected to command a market price of
$5 per share, the price required for a non-NASDAQ-quoted security to escape
the trading restrictions imposed by the SEC on so-called "penny stocks."
These trading restrictions tend to reduce broker-dealer and investor interest
in penny stocks and could operate to inhibit the ability of Biorelease's
stock to reach a $4 per share trading price that would make it eligible for
quotation on NASDAQ even should it otherwise qualify for quotation on NASDAQ.
Listing on NASDAQ Small Cap Market.
PMC and Biorelease intend to have the Biorelease common stock listed on the
NASDAQ Small Cap Market after the Merger. Initial inclusion in the NASDAQ
Small Cap Market is contingent upon, among other things, Biorelease having
net tangible assets of at least $4,000,000 or a market capitalization of
$50,000,000 and a minimum bid price of $4 per share. Biorelease and PMC do
not currently satisfy those requirements but PMC is attempting to raise
additional funds that would enable it to satisfy that net worth requirement.
One purpose of the Reverse Split is to potentially make it easier to satisfy
the $4 minimum bid price requirement. However, even if sufficient funds are
obtained to enable Biorelease to satisfy the requirements to be listed on the
NASDAQ Small Cap Market, there can be no assurance that it will continue to
be able to satisfy those requirements in the future and there can be no
assurance that the Biorelease common stock will satisfy the minimum bid price
requirement. If Biorelease fails to satisfy those requirements in the future,
the Biorelease common stock may be removed from the NASDAQ Small Cap Market,
with the effect that the market price for and liquidity of that common stock
may be adversely affected.
Tax Consequences.
The anticipated favorable tax consequences of the proposed Merger to PMC and
its shareholders (see "Terms of the Transaction - Federal Income Tax
Consequences") are not supported by an advance ruling by the Treasury
Department but are based upon an opinion of Berry Moorman P.C., in its
capacity as tax counsel to PMC (which tax opinion is one of the exhibits to
the registration statement of which this Prospectus is a part). Should the
actual income tax
24
consequences be different than as represented herein by PMC, significant gain
or loss might be recognized and reportable by any of PMC's shareholders.
Risks Relating to Biorelease
Biorelease's Independent Auditors Expressed Doubt Over Biorelease's
Ability to Continue as a Going Concern.
The report of independent public accountants on Biorelease's June 30, 1999
consolidated financial statements includes an explanatory paragraph stating
that its limited working capital raises substantial doubt about Biorelease's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Risks Relating to PMC
PMC's Independent Auditors Expressed Doubt Over PMC's Ability to
Continue as a Going Concern.
The report of independent public accountants on PMC's March 31, 1999
financial statements includes an explanatory paragraph stating that PMC's
recurring losses incurred from operations and a net capital deficiency raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty
Limited Operating History; Cumulative Net Loss.
PMC has had a limited operating history and has incurred losses in each year
of its operations. During the year ended March 31, 1999, PMC had a net loss
of $4,616,664 (including Non-Recurring, Non-Cash Expenses of $3,419,205)
and, as of March 31, 1999 its current liabilities exceeded its current
assets by $2,009,116. Subsequent to March 31, 1999, in order to reduce
its working capital deficit, PMC sold additional shares of common stock
to private investors and issued shares in exchange for the cancellation
of debt resulting in a working capital deficit of $1,654,812 as of September
30, 1999. Since its inception, PMC has been engaged in development stage
activities, including the development and testing of its products and
distribution of several of those products. PMC's operations are subject to
all of the risks inherent in the establishment of a new business enterprise.
The likelihood of PMC's success must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the formation of a new business, the highly competitive
environment in which it operates and PMC's current financial condition. PMC
is unable to predict whether its products will attain sufficient commercial
acceptance. In the absence of such acceptance its viability cannot be
sustained. Although PMC's management believes that a significant potential
market exists for its products, there can be no assurance that revenues
produced by its business activities will permit PMC ultimately to operate
profitably. See "Business of PMC," "Historical Financial Information",
"Selected Financial Information of PMC" and "PMC's Management's Discussion
and Analysis of Financial Condition and Results of Operation."
25
Additional Financing.
The conduct of PMC's business will require the availability of additional
funds. PMC may seek those funds through equity financings or from lending
institutions, all of which may result in dilution to then-existing
stockholders. There can be no assurance that such funds will be available
upon favorable terms and when they are needed.
Competition.
There are numerous companies, including Lubrizol, Ethyl Corporation and
Octel, that are engaged in the business of manufacture and sale of chemical
additives to petroleum products. Although PMC believes that its products
compare favorably with those currently on the market, to the best of its
knowledge, all of its competitors have substantially greater resources and
established distribution networks and market shares. Its competitors have
expended substantial sums on advertising to establish product identity and
brand recognition, and PMC will not, for the foreseeable future, be in a
position to establish product identity or brand recognition in this manner.
PMC will face intense competition from these companies in its attempt to
introduce its products into the market. There can be no assurance that PMC
will be able to introduce and market its products successfully.
Proprietary Rights; Risks of Infringement.
PMC relies primarily on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. PMC also believes that factors such as the
technological and creative skills of its personnel and new product
developments are essential to establishing and maintaining a technology
leadership position. PMC seeks to protect its documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. PMC currently has 38 U.S and foreign patents that are issued and
one U.S. patent application pending. PMC also has 15 U.S. and foreign
registered trademarks. Although PMC's first U.S. patent was issued in 1985
and has not been challenged, there can be no assurance that its existing
patents will not be invalidated, circumvented or challenged. There can also
be no assurance that any of the pending or future patent applications,
whether or not being currently challenged by applicable governmental patent
examiners, will be issued with the scope of the claims sought by PMC, if at
all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to its fuel additive technology or
design around any patents owned by PMC. Despite PMC's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of its
products or to obtain and use information that PMC regards as proprietary. In
addition, the laws of some foreign countries do not protect its proprietary
rights as fully as do the laws of the United States. There can be no
assurance that its means of protecting its proprietary rights in the United
States or abroad will be adequate or that others will not independently
develop similar technology.
PMC does not believe it is infringing on any proprietary rights of third
parties and, since its predecessors began business in 1984, no third party
has ever claimed that PMC was infringing their proprietary rights. There can
be no assurance, however, that third parties will not claim infringement by
PMC of their intellectual property rights. Any such claims, with or without
merit, against PMC could be time consuming to defend, result in costly
litigation, divert management's attention and resources, cause product
shipment delays or require PMC to enter
26
into royalty or licensing agreements. Such royalty or licensing agreements,
if required, may not be available on terms acceptable to PMC, if at all. In
the event of a successful claim of product infringement against PMC and its
failure or inability to license the infringed or similar technology, PMC's
business, operating results and financial condition would be materially
adversely affected.
Dependence on Outside Contractors.
PMC's products are presently produced for it by an independent third party
contractor. If that contractor fails to abide by those arrangements due to
strikes, labor or supply shortage or for any other reason, shipment of PMC's
products will be interrupted and its business may be materially adversely
affected, although PMC believes that there are a number of other third party
contractors with available blending capacity that could be utilized to
produce its products. In addition, although that contractor has agreed in
writing not to disclose any information with respect to its products to any
person, if it fails to abide by its undertakings, PMC's competitors might be
able to copy its products and techniques, and its business would be
materially adversely affected.
Possible Shortage of Chemical Supplies.
PMC's products are manufactured by a cold blending process which combines
certain chemicals. Except for an agreement with the supplier of one
ingredient, PMC does not have any contracts with the suppliers of those
chemicals. PMC does not believe that it will encounter any difficulty in
obtaining those chemicals in the future. However, if a shortage of any of
those chemicals should arise, PMC may not be able to obtain adequate supplies
or the cost of such supplies may become excessive and PMC could be adversely
affected.
Dependence on Management.
PMC's success is substantially dependent upon the ability of its management,
particularly Mark Nelson, Dr. Chandra Prakash and Alan Smith. The loss of key
personnel or an inability to attract and retain necessary replacement
personnel could substantially and adversely affect its business. PMC does not
have employment agreements with any of its management personnel, nor does PMC
maintain any key person life insurance policies on those persons other than a
$5.0 million key man insurance policy on Mark Nelson, its Chairman and
President.
Control by Management.
Upon completion of the Merger, assuming that all outstanding options are
exercised, all of the authorized Series A Convertible Preferred Stock is
issued and converted into common stock and all of the authorized Class A
common stock purchase warrants are issued and exercised, management will own
beneficially approximately 31.7% of the then outstanding shares of Biorelease
common stock. Neither the Articles of Incorporation nor the Bylaws of
Biorelease provide for cumulative voting. Since the election of directors and
certain other matters requiring shareholder approval will be decided by
majority vote (except as otherwise provided by the laws of Delaware or
Biorelease's Articles of Incorporation or Bylaws ), management may be able to
effectively control Biorelease. See "PMC Stock Ownership" and "Description of
Biorelease Capital Stock."
27
Non-Arm's Length Transactions.
PMC has engaged in certain transactions with certain of its officers and
directors which may not be considered as having occurred at arm's length. See
"PMC Management - PMC Certain Transactions."
MARKET PRICE AND DIVIDEND INFORMATION
Biorelease
The Biorelease common stock is traded in the Over-the-Counter market. The
Biorelease common stock was listed for trading on the NASDAQ Small Cap Market
under the symbol "BREL" from October 1992 until April 27, 1994 (excluding
from February 28, 1994 through March 17, 1994), at which time it was delisted
for failing to meet net asset requirements. Since that time, Biorelease's
common stock has been traded in the Over-the-Counter market and is listed on
the OTC Electronic Bulletin Board (the "OTCBB"). In July 1997 the Biorelease
common stock was given "BRLZ" as its new trading symbol and has traded under
that symbol since that date. The following table sets forth the range of
quoted high and low bid prices of Biorelease's common stock on a quarterly
basis for the periods shown, as provided by the OTCBB. These quotes reflect
inter-dealer prices without retail mark-up, markdown or commission and may
not necessarily represent actual transactions.
Bid Price
-----------------
Quarter Ended Low High
- ------------- --- ----
September 30, 1996 $0.125 $0.16
December 31, 1996 $0.08 $0.14
March 31, 1997 $0.09 $0.09
June 30, 1997 $0.13 $0.13
September 30, 1997 $0.08 $0.115
December 31, 1997 $0.03 $0.08
March 31, 1998 $0.03 $0.055
June 30, 1998 $0.035 $0.07
September 30, 1998 $0.01 $0.0125
December 31, 1998 $0.01 $0.01
March 31, 1999 $0.005 $0.01
June 30, 1999 $0.01 $0.015
September 30, 1999 $0.05 $0.095
December 31, 1999 (1) $0.11 $0.11
(1) Through December 14, 1999
On July 29, 1999 (the last full trading date before the public announcement
of the proposed Merger prior to the execution and delivery of the Merger
Agreement and the public announcement thereof the closing price of the
Biorelease common stock was $.016. On January
28
__, 2000, the latest practicable trading day before the printing of this
Proxy Statement/ Prospectus, the closing price of the Biorelease common stock
was $_____.
No assurance can be given as to the market prices of Biorelease common stock
at any time before the closing of the Merger or as to the market price of
Biorelease common stock at any time thereafter. The exchange ratio is fixed
and will not be adjusted to compensate PMC stockholders for decreases in the
market price of Biorelease common stock which could occur before the Merger
becomes effective. In the event the market price of Biorelease common stock
decreases or increases prior to the Effective Time (as hereinafter defined),
the market value at the Effective Time of the Biorelease common stock to be
received in the Merger in exchange for PMC common stock would correspondingly
decrease or increase. STOCKHOLDERS OF PMC ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS OF THE BIORELEASE COMMON STOCK.
PMC
The PMC common stock is not publicly traded.
Stockholders
As of December __, 1999, PMC had issued and outstanding _________ shares of
PMC common stock held by approximately _____ stockholders of record.
As of December __, 1999, Biorelease had issued and outstanding _________
shares of Biorelease common stock held by approximately _____ stockholders of
record, including brokerage firms and nominees with an undetermined number of
beneficial owners.
Dividends
Neither Biorelease nor PMC has ever declared or paid cash dividends on their
respective common stock. Biorelease currently expects to retain future
earnings, if any, for use in the operation and expansion of its business and
does not anticipate paying any cash dividends in the foreseeable future.
THE PMC SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to the holders of PMC
common stock in connection with the solicitation of proxies by the PMC Board
of Directors (the "PMC Board") for use at the PMC special meeting of
stockholders to be held on ______, February __, 2000 at 9:00 a.m., local
time, at ____________________, Colorado, and at any adjournments or
postponements thereof (the "PMC Special Meeting"). This Proxy
Statement/Prospectus, and the accompanying Proxy Card, are first being mailed
to holders of PMC common stock on or about January __, 2000.
29
The purpose of the PMC Special Meeting is to consider and vote upon a
proposal to approve the merger of PMC into Biorelease (the "Merger") in
accordance with the Agreement and Plan of Merger dated July 26, 1999 between
PMC and Biorelease (the "Merger Agreement"), a copy of which is attached
hereto as Annex A. See "Proposal One - Approval of the Merger" for more
information regarding the terms and conditions of the Merger.
Record Date and Outstanding Shares
Only stockholders of record of PMC common stock at the close of business on
December __, 1999 (the "Record Date") are entitled to notice of and to vote
at the PMC Special Meeting. At the close of business on the Record Date,
there were ________ shares of PMC common stock outstanding and entitled to
vote, and there were approximately ____stockholders of record of PMC common
stock. Each stockholder of record of PMC common stock is entitled to one vote
for each share of PMC common stock held by them as of the Record Date.
Voting of Proxies
The proxy card accompanying this Proxy Statement/Prospectus is solicited on
behalf of the PMC Board for use at the PMC Special Meeting. Whether or not
you are able to attend the PMC Special Meeting, you are urged to complete,
date, and sign the accompanying proxy and promptly return it in the
accompanying envelope or otherwise mail it to PMC. All proxies that are
properly executed and returned, and that are not revoked, will be voted at
the PMC Special Meeting in accordance with the instructions you indicate
thereon. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR APPROVAL OF THE
MERGER. The PMC Board does not presently intend to bring any other business
before the PMC Special Meeting other than the Merger. So far as is known to
the PMC Board, as of the date this Proxy Statement/Prospectus is being mailed
to holders of PMC common stock, no other matters are to be brought before the
PMC Special Meeting. As to any business that may properly come before the PMC
Special Meeting, including, among other things, consideration of any motion
made for adjournment of the PMC Special Meeting (including, without
limitation, for purposes of soliciting additional votes for approval of the
Merger), it is intended that proxies, in the form enclosed, will be voted in
respect thereof in accordance with the judgment of the proxies. Any
adjournment of the PMC Special Meeting will require the affirmative vote of
the holders of at least a majority of the shares represented in person or by
proxy at such meeting.
A stockholder of PMC who has delivered a proxy to PMC may revoke it at any
time before it is exercised at the PMC Special Meeting, by (i) filing a
written notice of revocation with, or delivering a duly executed proxy
bearing a later date to Mark L. Nelson, Chairman and President, Polar
Molecular Corporation., 4600 S. Ulster Street, Suite 700, Denver, Colorado
80237, or (ii) attending the PMC Special Meeting and voting in person
(although attendance at the PMC Special Meeting will not, by itself, revoke a
proxy). Please note, however, that if a stockholder's shares are held of
record by a broker, bank, or other nominee and that stockholder wishes to
vote at the PMC Special Meeting, the stockholder must bring to the PMC
Special Meeting a letter from the broker, bank, or other nominee confirming
that stockholder's beneficial ownership of such shares as of the Record Date.
All shares represented by a valid proxy received prior to the PMC Special
Meeting will be voted. All votes will be tabulated by the inspector of
30
election appointed for the PMC Special Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes.
Quorum Required
The PMC Bylaws provide that the holders of a majority of PMC common stock
issued and outstanding and entitled to vote at the PMC Special Meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business at the PMC Special Meeting. Abstentions and broker
non-votes will be counted as present for the purpose of determining the
presence of a quorum.
Vote Required
Pursuant to the Utah Revised Business Corporation Act and the PMC Articles of
Incorporation and Bylaws, approval of the Merger requires the affirmative
vote of the holders of a majority of the outstanding shares of PMC common
stock entitled to vote at the PMC Special Meeting. Abstentions and broker
non-votes are not affirmative votes and, therefore, will have the same effect
as votes against approval of the Merger. Since the required vote of the
stockholders of PMC is based upon the number of outstanding shares of PMC
common stock, rather than upon the shares actually voted in person or by
proxy at the PMC Special Meeting, the failure by a stockholder either to
submit a proxy or to vote in person at the PMC special meeting will have the
same effect as a vote against approval of the Merger.
The matters to be considered at the PMC Special Meeting are of great
importance to the stockholders of PMC. Accordingly, stockholders are urged to
read and carefully consider the information presented in this Proxy
Statement/Prospectus and to complete, date, sign, and promptly return the
enclosed proxy in the enclosed postage prepaid envelope.
All directors and executive officers of PMC have entered into agreements to
vote all shares over which they exercise voting control for the approval of
the Merger at the PMC Special Meeting. As of December ____, 1999 such persons
beneficially owned _______ shares of outstanding PMC common stock (excluding
shares which could be acquired upon stock option exercises within 60 days of
that date), or _____% of the PMC common stock outstanding as of such date.
Notwithstanding these voting agreements, the vote of each stockholder of PMC
is important, and all stockholders are encouraged to vote.
Abstentions; Broker Non-Votes
If an executed PMC proxy is returned and the stockholder has specifically
abstained from voting on any matter, the shares represented by such proxy
will be considered present at the PMC Special Meeting for purposes of
determining a quorum. If an executed proxy is returned by a broker holding
shares in street name which indicates that the broker does not have
discretionary authority as to certain shares to vote on one or more matters,
such shares will be considered present at the meeting for purposes of
determining a quorum. Since the required vote of the stockholders of PMC is
based on the number of outstanding shares of PMC common stock, abstentions
and broker non-votes will have the same effect as a vote against approval of
the Merger.
31
Solicitation of Proxies and Expenses
PMC will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement/Prospectus, the proxy
and any additional solicitation material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by
others so that they may forward this solicitation material to such beneficial
owners. In addition, PMC may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or
agents of PMC. No additional compensation will be paid to these individuals
for any such services. Except as described above, PMC does not presently
intend to solicit proxies other than by mail.
PMC STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS APPROVED, BIORELEASE WILL SEND YOU WRITTEN
INSTRUCTIONS FOR EXCHANGING YOUR STOCK CERTIFICATES.
THE BIORELEASE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to the holders of
Biorelease common stock in connection with the solicitation of proxies by the
Biorelease Board of Directors (the "Biorelease Board") for use at the
Biorelease special meeting of stockholders to be held on ______, February __,
2000 at 8:00 a.m., local time, at ____________________, and at any
adjournments or postponements thereof (the "Biorelease Special Meeting").
This Proxy Statement/Prospectus, and the accompanying Proxy Card, are first
being mailed to holders of Biorelease common stock on or about January __,
2000.
The purpose of the Biorelease Special Meeting is to consider and vote upon
the following proposals, all of which are more fully described elsewhere in
this document:
o To approve the merger of PMC into Biorelease (the "Merger") in
accordance with the Agreement and Plan of Merger dated July 26, 1999
between PMC and Biorelease (the "Merger Agreement"), a copy of which is
attached hereto as Annex A. As part of the Merger, the name of
Biorelease would be changed to "Polar Molecular Corporation".
o To approve an amendment (the "Charter Amendment") to the certificate of
incorporation of Biorelease to authorize 1,000,000 shares of preferred
stock, including 100,000 shares of Series A Preferred Stock.
o To reverse split the current outstanding shares of Biorelease common
stock on a 1-for-25 basis (the "Reverse Split").
o To elect to Biorelease's Board of Directors certain persons (the "PMC
Nominees") that have been selected by PMC.
32
Record Date and Outstanding Shares
Only stockholders of record of Biorelease common stock at the close of
business on December __, 1999 (the "Record Date") are entitled to notice of
and to vote at the Biorelease Special Meeting. At the close of business on
the Record Date, there were ________ shares of Biorelease common stock
outstanding and entitled to vote, and there were approximately
____stockholders of record of Biorelease common stock. Each stockholder of
record of Biorelease common stock is entitled to one vote for each share of
Biorelease common stock held by them as of the Record Date.
Voting of Proxies
The proxy card accompanying this Proxy Statement/Prospectus is solicited on
behalf of the Biorelease Board for use at the Biorelease Special Meeting.
Whether or not you are able to attend the Biorelease Special Meeting, you are
urged to complete, date, and sign the accompanying proxy and promptly return
it in the accompanying envelope or otherwise mail it to Biorelease. All
proxies that are properly executed and returned, and that are not revoked,
will be voted at the Biorelease Special Meeting in accordance with the
instructions you indicate thereon. EXECUTED BUT UNMARKED PROXIES WILL BE
VOTED FOR APPROVAL OF THE MERGER, THE CHARTER AMENDMENT AND THE REVERSE SPLIT
AND FOR ELECTION OF THE PMC NOMINEES. The Biorelease Board does not presently
intend to bring any other business before the Biorelease Special Meeting
other than the proposals set forth above. So far as is known to the
Biorelease Board, as of the date this Proxy Statement/Prospectus is being
mailed to holders of Biorelease common stock, no other matters are to be
brought before the Biorelease Special Meeting. As to any business that may
properly come before the Biorelease Special Meeting, including, among other
things, consideration of any motion made for adjournment of the Biorelease
Special Meeting (including, without limitation, for purposes of soliciting
additional votes for approval of the Merger), it is intended that proxies, in
the form enclosed, will be voted in respect thereof in accordance with the
judgment of the proxies. Any adjournment of the Biorelease Special Meeting
will require the affirmative vote of the holders of at least a majority of
the shares represented in person or by proxy at such meeting.
A stockholder of Biorelease who has delivered a proxy to Biorelease may
revoke it at any time before it is exercised at the Biorelease Special
Meeting, by (i) filing a written notice of revocation with, or delivering a
duly executed proxy bearing a later date to R. Bruce Reeves, President,
Biorelease Corp., 340 Granite Street, Suite 200, Manchester, NH 03102, or
(ii) attending the Biorelease Special Meeting and voting in person (although
attendance at the Biorelease Special Meeting will not, by itself, revoke a
proxy). Please note, however, that if a stockholder's shares are held of
record by a broker, bank, or other nominee and that stockholder wishes to
vote at the Biorelease Special Meeting, the stockholder must bring to the
Biorelease Special Meeting a letter from the broker, bank, or other nominee
confirming that stockholder's beneficial ownership of such shares as of the
Record Date. All shares represented by a valid proxy received prior to the
Biorelease Special Meeting will be voted. All votes will be tabulated by the
inspector of election appointed for the Biorelease Special Meeting, who will
separately tabulate affirmative and negative votes, abstentions and broker
non-votes.
33
Quorum Required
The Biorelease Bylaws provide that the holders of a majority of Biorelease
common stock issued and outstanding and entitled to vote at the Biorelease
Special Meeting, present in person or represented by proxy, shall constitute
a quorum for the transaction of business at the Biorelease Special Meeting.
Abstentions and broker non-votes will be counted as present for the purpose
of determining the presence of a quorum.
Vote Required
Pursuant to the Delaware General Corporation Law and the Biorelease Articles
of Incorporation and Bylaws, approval of the Merger, the Charter Amendment
and the Reverse Stock Split requires the affirmative vote of the holders of a
majority of the outstanding shares of Biorelease common stock entitled to
vote at the Biorelease Special Meeting. Abstentions and broker non-votes are
not affirmative votes and, therefore, will have the same effect as votes
against approval of those proposals. Since the required vote of the
stockholders of Biorelease for those approval of the Merger, Charter
Amendment and Reverse Split is based upon the number of outstanding shares of
Biorelease common stock, rather than upon the shares actually voted in person
or by proxy at the Biorelease Special Meeting, the failure by the holder of
any such shares either to submit a proxy or to vote in person at the
Biorelease special meeting will have the same effect as a vote against
approval of the Merger, the Charter Amendment and the Reverse Stock Split.
The election of the PMC Nominees will require them to receive more votes than
any other persons that may be nominated for election to the Biorelease Board.
The matters to be considered at the Biorelease Special Meeting are of great
importance to the stockholders of Biorelease. Accordingly, stockholders are
urged to read and carefully consider the information presented in this Proxy
Statement/Prospectus and to complete, date, sign, and promptly return the
enclosed proxy in the enclosed postage prepaid envelope.
Abstentions; Broker Non-Votes
If an executed Biorelease proxy is returned and the stockholder has
specifically abstained from voting on any matter, the shares represented by
such proxy will be considered present at the Biorelease Special Meeting for
purposes of determining a quorum. If an executed proxy is returned by a
broker holding shares in street name which indicates that the broker does not
have discretionary authority as to certain shares to vote on one or more
matters, such shares will be considered present at the meeting for purposes
of determining a quorum. Since the required vote of the stockholders of
Biorelease on the Merger, Charter Amendment and Reverse Stock Split is based
on the number of outstanding shares of Biorelease common stock, abstentions
and broker non-votes will have the same effect as a vote against approval of
the Merger, the Charter Amendment and the Reverse Split.
34
Solicitation of Proxies and Expenses
PMC will bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this Proxy Statement/Prospectus, the proxy
and any additional solicitation material furnished to stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by
others so that they may forward this solicitation material to such beneficial
owners. In addition, PMC may reimburse such persons for their costs of
forwarding the solicitation material to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by solicitation by
telephone, telegram or other means by directors, officers, employees or
agents of Biorelease. No additional compensation will be paid to these
individuals for any such services. Except as described above, Biorelease does
not presently intend to solicit proxies other than by mail.
BIORELEASE STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IF THE MERGER AND REVERSE SPLIT ARE APPROVED, BIORELEASE WILL
SEND YOU WRITTEN INSTRUCTIONS FOR EXCHANGING YOUR STOCK CERTIFICATES.
PROPOSAL ONE - APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. The following description does not purport to be
complete. The discussion of the Merger in this Proxy Statement/ Prospectus
and the description of the principal terms of the Merger Agreement are
subject to and qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached to this Proxy Statement/Prospectus as
Annex A. You are encouraged to read the Merger Agreement and the other
annexes in their entirety.
General
In order for the Merger to be completed, it must be approved by the
shareholders of PMC and the shareholders of Biorelease and the Biorelease
shareholders must also adopt the Charter Amendment and the Reverse Stock
Split and elect the PMC Nominees. In addition, Biorelease has agreed, if the
Merger is completed, to issue a total of 780,000 post-reverse split shares of
Biorelease common stock (the "Consultant Shares") to certain persons who have
assisted Biorelease in connection with the Merger. All of the proposals to be
voted upon by the shareholders of both companies and the issuance of the
Consultant Shares can therefore be viewed as parts of a single, larger
transaction that would result in the following:
o Biorelease will be the surviving corporation in the Merger. The
separate existence of PMC will terminate and all of its assets and
liabilities will become assets and liabilities of Biorelease.
o The name of Biorelease will be changed to "Polar Molecular
Corporation". To reduce confusion, we will continue to refer to the
surviving corporation as Biorelease in this document, even though it
will then be called "Polar Molecular Corporation."
35
o The existing Biorelease Certificate of Incorporation, amended as
provided herein, will continue as the Certificate of Incorporation of
Biorelease after the Merger. The existing Bylaws of Biorelease will
continue as the Bylaws of Biorelease after the Merger.
o As a result of the Charter Amendment, the Certificate of Incorporation
of Biorelease will be amended to authorize the issuance of a total of
1,000,000 shares of preferred stock, including 100,000 shares of Series
A Convertible Preferred Stock that will be issued to the holders of the
existing PMC Series A Convertible Preferred Stock as part of the
Merger.
o As a result of the Reverse Stock Split, the Pre-Merger holders of
Biorelease common stock will receive one share of Post-Merger
Biorelease common stock for each 25 shares of Biorelease common stock
owned by them. The existing shareholders of Biorelease will therefore
receive, in the aggregate, approximately 484,970 shares of Post-Merger
Biorelease common stock. That will be approximately 3.3% of the shares
of common stock that will then be outstanding and approximately 2.6% of
the shares of common stock that would then be outstanding if all
options and warrants were exercised and all authorized shares of Series
A Convertible Preferred Stock were issued and converted into common
stock.
o Each outstanding share of PMC common stock (with all shares of PMC
common stock issuable upon the exercise of options with an exercise
price of less than $.20 per share deemed to be outstanding) will be
converted into the right to receive approximately 0 .150 of a share of
Post-Merger Biorelease common stock (the "Exchange Ratio"), with
fractional shares rounded to the nearest whole share. The existing
shareholders of PMC (including the holders of those options) will
therefore receive, in the aggregate, 13,620,000 shares of Post-Merger
Biorelease common stock. That will be approximately 91.5% of the shares
of common stock that will then be outstanding and approximately 73% of
the shares of common stock that would then be outstanding if all
options and warrants were exercised and all authorized shares of Series
A Convertible Preferred Stock were issued and converted into common
stock.
o The persons who receive the Consultant Shares will receive, in the
aggregate, 780,000 shares of Post-Merger Biorelease common stock. That
will be approximately 5.2% of the shares of common stock that will then
be outstanding and approximately 4.2% of the shares of common stock
that would then be outstanding if all options and warrants were
exercised and all authorized shares of Series A Convertible Preferred
Stock were issued and converted into common stock.
o Each outstanding share of PMC Series A Convertible Preferred Stock will
be converted into one share of Biorelease Series A Convertible
Preferred Stock. The terms of the Biorelease Series A Convertible
Preferred Stock is identical to the terms of the PMC Series A
Convertible Preferred Stock that is being exchanged, with appropriate
changes, based on the Exchange Ratio, in the number of shares issuable
upon conversion of that Series A Preferred Stock.
o Each outstanding option or warrant to purchase PMC common stock (each a
"PMC Option" or a "PMC Warrant") will be assumed by Biorelease and
converted into an option or warrant
38
to acquire the number of shares of Biorelease common stock as the
holder would have been entitled to receive had the holder exercised
that PMC Option or PMC Warrant in full immediately prior to the Merger.
o As the result of the election of the PMC Nominees and the resignation
of the current Biorelease directors, the Board of Directors of
Biorelease will consist of persons that have been selected by the
current management of PMC. The current officers and directors of
Biorelease will no longer be involved in the management of Biorelease
after the Merger and will be replaced by persons selected by the PMC
Nominees.
o Separately, but as an integral part of the Merger, Biorelease will
distribute all of the capital stock of its subsidiary BTI to those
persons who were shareholders of Biorelease before the Merger.
As a result, Biorelease will no longer have any interest in the
business that it conducts through BTI. The only business to be carried
on by Biorelease after the Merger will be the business of PMC.
Background of the Merger
In early 1998, the Board of Directors and management of PMC began an
extensive fact finding and evaluation process to identify and analyze various
alternatives for obtaining additional equity financing. PMC felt that it
needed additional equity in order to improve its growth prospects and thereby
create increased value for its shareholders. During the course of this
evaluation process, PMC enlisted the support, professional advice and
services of (i) its legal counsel - Berry Moorman P.C. (ii) Houlihan Smith &
Company, Inc., a registered Broker-Dealer firm with prior knowledge of PMC,
(iii) Bridgestone Capital Group, L.L.C., an investment banking firm whose
principals had previously assisted PMC in a consulting capacity, and (iv)
other individual financial consultants who had prior exposure and knowledge
of the business of PMC. PMC and its advisors evaluated various sources of
potential equity investment that might be available if it remained a private
company including venture capital firms, private placement of common and/or
preferred stock with accredited individual investors and institutions, and
equity participation from environmental advocacy organizations such as the
Conservation Law Foundation with whom a relationship was actually established
in May of 1998 through CLF Services, Inc.
In the fall of 1998, management and the Board of Directors concluded that, as
a private company, it would be highly unlikely, if not impossible, to raise
the amounts of equity capital necessary for the achievement of its corporate
objectives. Therefore, a decision was made to focus the evaluation process on
various alternatives for becoming a publicly traded company and thus having
greater access to the public capital markets. PMC evaluated the relative
merits and difficulties associated with a self-underwritten public offering,
an initial public offering through an underwriter and a business combination
with an existing publicly traded company. The concept of a self-underwriting
with possible internet marketing support was analyzed and subsequently
dismissed as being too risky, time-consuming and uncertain. The Board of
Directors and management also concluded that even if a qualified underwriter
could be secured, an initial public offering would be very expensive,
time-consuming and replete with uncertainties and risks as to the amount of
equity that could be raised, the pricing of the offering,
37
the amount of dilution to existing shareholders, and market conditions at the
time of the offering which might cause the offering to be aborted.
As a result of these various considerations, conclusions and uncertainties,
in March of 1999, PMC's Board of Directors authorized management to explore
the potential for a business combination with an existing publicly traded
company. Bridgestone Capital Group, L.L.C. ("Bridgestone") was then engaged
on behalf of PMC to seek out potential publicly traded companies for such a
combination. Bridgestone met with PMC's management and conferred with
Houlihan Smith & Company, Inc. and Mr. Stanley Kranjc (a consultant to PMC
who is currently a managing director of J.P. Morgan & Co., Incorporated and
was then employed with Salomon, Smith Barney) concerning the capital
structure and other corporate characteristics that would be desirable for a
business combination.
After several weeks of searching and screening potential target companies,
Bridgestone and Mark Nelson, the President of PMC, began intensive
negotiations with Dr. Bruce Reeves, the President of Biorelease. Prior to
those discussions, there had not been any contact or affiliation between PMC
and Biorelease or their executive officers, directors of affiliates. The
tentative terms of a proposed transaction were submitted to PMC's Board of
Directors for a vote via telephone on May 5, 1999, whereupon the terms were
approved and management was authorized to proceed to a final agreement
subject to a favorable evaluation of the proposed terms and a preliminary due
diligence review. A Letter of Intent was then executed between Biorelease and
PMC on May 14, 1999, in which it was agreed that Biorelease would acquire PMC
in a tax-free reorganization. On July 26, 1999, the management of Biorelease
and the management of PMC executed the Merger Agreement which detailed all of
the terms and conditions of the contemplated transaction.
Reasons for the Merger
Certain statements made in the following paragraphs regarding the potential
benefits that could result from the Merger are forward-looking statements
based on current expectations and entail various risks and uncertainties that
could cause actual results to differ materially from those expressed in such
forward-looking statements. The anticipated potential benefits of the Merger
may not be realized. Such risks and uncertainties are set forth under "Risk
Factors" and elsewhere in this Proxy Statement/Prospectus.
In reaching their decisions to approve the Merger Agreement, the Merger, and
the transactions contemplated by the Merger Agreement, each of the Biorelease
Board and the PMC Board consulted with their respective management teams and
advisors and independently considered the proposed Merger Agreement and the
transactions contemplated thereunder. Based on their respective reviews of
the proposed transaction and the business and operations of the other party,
the Biorelease Board and the PMC Board each approved the Merger Agreement and
the Merger. Each board concluded that the companies' respective stockholders
would benefit by becoming shareholders in a company that had growth potential
and whose securities may become traded in the public markets.
36
Biorelease's Reasons for the Merger
The Biorelease Board has unanimously approved the Merger Agreement and the
Merger and has identified several potential benefits of the Merger to
Biorelease. The Biorelease Board believes that the Merger will be beneficial
to the Biorelease shareholders by enabling them to participate as
shareholders in a company with growth potential. Biorelease currently has no
operations and its shares would therefore have limited value unless
Biorelease acquired another company that could add value to Biorelease. After
reviewing the business of PMC, the Biorelease Board felt that PMC offered an
attractive opportunity and that, although it was not currently profitable, it
had future growth and profit potential.
PMC's Reasons for the Merger
The PMC Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby. The PMC Board unanimously recommends that
the PMC stockholders vote to approve and adopt the Merger Agreement and the
Merger.
The PMC Board believed that the primary reason the Merger will be beneficial
to PMC is that it would give PMC an opportunity to have its shares publicly
traded, which will potentially increase shareholder liquidity and make it
easier for PMC to use shares to raise additional equity and to use stock
options to attract and retain qualified employees.
The PMC Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but
not limited to the risk that the potential benefits sought in the Merger
might not be fully realized, the transaction costs expected to be incurred in
connection with the Merger and the other risks described under "Risk
Factors--Risks Related to Merger" herein. After due consideration, the PMC
Board concluded that the risks associated with the proposed Merger were
outweighed by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the PMC
Board is not intended to be exhaustive but is believed to include all
material factors considered by the PMC Board. In view of the wide variety of
information and factors, both positive and negative, considered by the PMC
Board, the PMC Board did not find it practical to, and did not, quantify or
otherwise assign relative or specific weights to the foregoing factors
considered. After taking into consideration all of the factors set forth
above, the PMC Board concluded that the Merger was in the best interests of
PMC and its stockholders.
Recommendation of the PMC Board
THE PMC BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER,
AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND THAT THE
MERGER IS IN THE BEST INTERESTS OF, PMC AND ITS STOCKHOLDERS AND THEREFORE
RECOMMENDS THAT THE HOLDERS OF PMC COMMON STOCK VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
39
Recommendation of the Biorelease Board
THE BIORELEASE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER, AND BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND
THAT THE MERGER IS IN THE BEST INTERESTS OF, BIORELEASE AND ITS STOCKHOLDERS
AND THEREFORE RECOMMENDS THAT THE HOLDERS OF BIORELEASE COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Interests of Certain Persons in the Merger
In considering the recommendation of the PMC and Biorelease Boards with
respect to the Merger Agreement, you should be aware that members of the PMC
and Biorelease Boards and the executive officers of PMC and Biorelease have
certain interests in the Merger by virtue of their beneficial ownership of
PMC common stock and Biorelease common stock.
As of December ___, 1999, the executive officers and directors of PMC
beneficially owned an aggregate of _______ shares of PMC common stock
(including ______ shares of PMC common stock subject to options exercisable
within 60 days of that date). Based upon the average of the bid and ask price
of Biorelease common stock on January __, 2000, the latest practicable
trading day before the printing of this Proxy Statement/Prospectus, and
assuming they exercise all outstanding options that are currently exercisable
by them, the aggregate dollar value of Biorelease common stock to be received
in the Merger by the executive officers and directors of PMC is approximately
$________.
As of December ____, 1999, the executive officers and directors of Biorelease
beneficially owned an aggregate of _______ shares of Biorelease common stock
(including ______ shares subject to options exercisable within 60 days of
that date). Based upon the average of the bid and ask price of Biorelease
common stock on January __, 2000, the latest practicable trading day before
the printing of this Proxy Statement/Prospectus, and assuming they exercise
all of those outstanding options that are currently exercisable by them, the
aggregate dollar value of Biorelease common stock owned by the executive
officers and directors of Biorelease is approximately $________.
Certain Federal Income Tax Considerations
The following discussion summarizes certain material federal income tax
considerations relevant to the Merger that are applicable to holders of PMC
common stock. This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), existing treasury
regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or
may not be retroactive, could alter the tax consequences to Biorelease, PMC
or PMC's stockholders as described herein.
PMC stockholders should be aware that this discussion does not deal with all
federal income tax considerations that may be relevant to particular PMC
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, who are subject to the
40
alternative minimum tax provisions of the Code, who are foreign persons or
entities, who are financial institutions or insurance companies, who do not
hold their PMC shares as capital assets, who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions, who hold PMC common stock as part of an integrated investment
(including a "straddle") comprised of shares of PMC common stock and one or
more other positions, or who may hold PMC common stock subject to the
constructive sale provisions of Section 1259 of the Code. In addition, the
following discussion does not address the tax consequences of the Merger
under foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the Merger (whether
or not any such transactions are undertaken in connection with the Merger),
including without limitation any transaction in which PMC shares are acquired
or shares of Biorelease common stock are disposed of, or the tax consequences
to holders of options, warrants or similar rights to acquire PMC common
stock, including the assumption by Biorelease of outstanding options and
subscriptions to acquire PMC common stock. ACCORDINGLY, PMC STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER.
Consummation of the Merger is conditioned upon receipt by PMC of an opinion
(the "Tax Opinion") from their counsel, Berry Moorman Professional
Corporation, that the Merger should constitute a "reorganization" within the
meaning of Section 368(a) of the Code (a "Reorganization"). Assuming the
Merger is a Reorganization, then, subject to the assumptions, limitations and
qualifications referred to herein and in the Tax Opinion, the Merger should
result in the following federal income tax consequences:
o No gain or loss should be recognized by holders of PMC common stock
solely upon their receipt in the Merger of Biorelease common stock in
exchange therefor (except to the extent of cash received in lieu of a
fractional share of Biorelease common stock).
o The aggregate tax basis of the Biorelease common stock received by PMC
stockholders in the Merger (including any fractional share of
Biorelease common stock not actually received) should be the same as
the aggregate tax basis of the PMC common stock surrendered in exchange
therefor.
o The holding period of the Biorelease common stock received by each PMC
stockholder in the Merger should include the period for which the PMC
common stock surrendered in exchange therefor was considered to be
held, provided that the PMC common stock so surrendered is held as a
capital asset at the time of the Merger.
o Cash payments received by holders of PMC common stock in lieu of a
fractional share should be treated as if such fractional share of
Biorelease common stock had been issued in the Merger and then redeemed
by Biorelease. A PMC stockholder receiving such cash should recognize
gain or loss with respect to such payment, measured by the difference
(if any) between the amount of cash received and the basis in such
fractional share.
o Neither Biorelease or PMC should recognize gain or loss solely as a
result of the Merger.
41
Even if the Merger qualifies as a Reorganization, a recipient of shares of
Biorelease common stock could recognize gain to the extent that such shares
were considered to be received in exchange for services or property (other
than solely PMC common stock). All or a portion of such gain may be taxable
as ordinary income. Gain could also have to be recognized to the extent that
an PMC stockholder was treated as receiving (directly or indirectly)
consideration other than Biorelease common stock in exchange for such
stockholder's PMC common stock.
The parties will not request a ruling from the Internal Revenue Service (the
"IRS") in connection with the Merger. PMC stockholders should be aware that
the Tax Opinion does not bind the IRS and the IRS is therefore not precluded
from successfully asserting a contrary opinion. In addition, the Tax Opinion
is subject to certain assumptions, limitations and qualifications, including
but not limited to the truth and accuracy of certain representations made by
Biorelease and PMC in certain certificates to be delivered to counsel by the
respective managements of Biorelease and PMC.
A successful IRS challenge to the Reorganization status of the Merger as a
result of a failure to meet any of the requirements of a Reorganization would
result in PMC stockholders recognizing taxable gain or loss with respect to
each share of PMC common stock surrendered equal to the difference between
the stockholder's basis in such share and the fair market value, as of the
Effective Time, of the Biorelease common stock received in exchange therefor.
In such event, a stockholder's aggregate basis in the Biorelease common stock
so received would equal its fair market value as of the Effective Time, and
the stockholder's holding period for such stock would begin the day after the
Merger.
Appraisal Rights for PMC Shareholders
Pursuant to the Utah Revised Business Corporation Act (the "Utah RBCA"),
PMC's shareholders are entitled to dissent from the Merger and obtain from
PMC the fair value of all shares of PMC common stock or preferred stock
beneficially owned by such dissenting shareholder.
Under Utah law, a holder of PMC common stock or preferred stock who desires
to dissent from the proposed Merger and receive cash payment for the fair
value of his or her shares must give PMC, prior to the vote on the Merger at
the PMC Special Meeting, written notice of his or her intent to demand
payment for his or her shares if the Merger is effectuated. Within 10 days
after receiving the required stockholder approval for the Merger, PMC shall
send written notice of the approval to those stockholders who dissented and
did not vote in favor of the Merger.
Stockholders who are given a dissenter's notice and wish to assert
dissenters' rights must, within 30 days after the date of the dissenters'
notice and in accordance with the terms of such notice, cause PMC to receive
a payment demand and submit the certificates representing their shares to PMC
or PMC's transfer agent as directed in the dissenters' notice. Voting against
the Merger, either by proxy or at the meeting, does not fulfill the statutory
requirements with respect to notice of his or her intent to demand payment
and the required demand for payment. A vote, in person or by proxy, in favor
of the Merger constitutes a waiver of appraisal rights. A stockholder giving
such notice and making such demand, who did not vote for the proposal to
approve the Merger, shall be entitled, if and when the Merger is effected, to
be paid by PMC the fair value of his or her shares.
42
Upon the later of the Effective Date and receipt by PMC of each payment
demand, PMC shall pay the fair value of the dissenter's shares, plus
interest, to each dissenter who has timely deposited his or her certificates.
If the dissenter is dissatisfied with the payment, the dissenter may, within
30 days after PMC made payment for his or her shares, notify PMC in writing
of his or her own estimate of the fair value of his or her shares and demand
payment of the estimated amount, plus interest, less the payment already
made. The dissenter may also deliver such notice to PMC if PMC fails to make
payment within 60 days after the deadline to receive payment demands. If a
demand for payment remains unresolved, PMC must commence a proceeding within
60 days after receiving the dissenter's payment demand to petition the court
to determine the fair value of the shares, including interest. If PMC does
not commence such a proceeding within the 60 day period, it must pay each
dissenter whose demand remains unresolved the amount demanded.
The above summary with respect to the rights of PMC and the stockholders to
object and demand payment for their shares does not purport to be complete
and is qualified in its entirety by reference to the provisions of Part 13 of
the Utah RBCA, a copy of which is attached hereto as Annex B.
Appraisal Rights for Biorelease Shareholders
Record holders of shares of Biorelease common stock who follow the
appropriate procedures are entitled to appraisal rights under Section 262 of
the Delaware General Corporation Law (the "DGCL") in connection with the
Merger. The following discussion is not a complete statement of the law
pertaining to appraisal rights under the DGCL and is qualified in its
entirety by the full text of Section 262 which is reprinted in its entirety
as Appendix III to this Proxy Statement. Except as set forth herein,
stockholders of Biorelease will not be entitled to appraisal rights in
connection with the Merger.
Under the DGCL, record holders of shares of Biorelease common stock who
follow the procedures set forth in Section 262 and who have not voted in
favor of adoption of the Merger will be entitled to have their shares of
Biorelease common stock (such shares, "Dissenting Shares") appraised by the
Delaware Court of Chancery and to receive payment in cash of the "fair value"
of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, as determined by such court.
Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of stockholders, as in the case of the Special Meeting, not less
than 20 days prior to the meeting, Biorelease must notify each of the holders
of shares of Biorelease common stock at the close of business on the Record
Date that such appraisal rights are available and include in each such notice
a copy of Section 262. This Proxy Statement constitutes such notice. Any
stockholder who wishes to exercise appraisal rights should review the
following discussion and Appendix III carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in
the loss of appraisal rights under the DGCL.
A holder of shares of Biorelease common stock wishing to exercise appraisal
rights must (i) deliver to Biorelease, before the vote on the approval of the
Merger at the Special Meeting, a
43
written demand for appraisal of such holder's shares of Biorelease common
stock and (ii) not vote in favor of adoption of the Merger. In addition, a
holder of shares of Biorelease common stock wishing to exercise appraisal
rights must be the record holder of such shares on the date the written
demand for appraisal is made and must continue to hold such shares of record
through the Effective Time.
Only a holder of record of shares of Biorelease common stock is entitled to
assert appraisal rights for the shares of Biorelease common stock registered
in that holder's name. A demand for appraisal should be executed by or on
behalf of the holder of record fully and correctly, as the holder's name
appears on the Certificates.
If the shares of Biorelease common stock are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, execution of the
demand should be made in that capacity, and if the shares of Biorelease
common stock are owned of record by more than one person, as in a joint
tenancy or tenancy in common, the demand should be executed by or on behalf
of all joint owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however,
the agent must identify the record owner or owners and expressly disclose the
fact that, in executing the demand, the agent is agent for such owner or
owners. A record holder such as a broker who holds shares of Biorelease
common stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the shares of Biorelease common stock held for one or
more beneficial owners while not exercising such rights with respect to the
shares of Biorelease common stock held for other beneficial owners; in such
case, the written demand should set forth the number of shares as to which
appraisal is sought and where no number of shares is expressly mentioned the
demand will be presumed to cover all shares of Biorelease common stock held
in the name of the record owner. Holders of shares of Biorelease common stock
who hold their shares in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal
by such nominee. All written demands for appraisal of shares of Biorelease
common stock should be mailed or delivered to Biorelease, 340 Granite Street,
Ste. 200, Manchester, New Hampshire 03102, so as to be received before the
vote on the adoption of the Merger Agreement at the Special Meeting.
Within 10 days after the Effective Time, Biorelease, as the surviving
corporation in the Merger, must send a notice of the Effective Time of the
Merger to each person who has duly demanded appraisal in accordance with the
provisions of Section 262. Within 120 days after the Effective Time, but not
thereafter, Biorelease, or any holder of shares of Biorelease common stock
entitled to appraisal rights under Section 262 and who has complied with the
foregoing procedures, may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of such shares. Biorelease is not
under any obligation, and has no present intention, to file a petition with
respect to the appraisal of the fair value of the shares of Biorelease common
stock. Accordingly, it is the obligation of the stockholders to initiate all
necessary action to perfect their appraisal rights within the time prescribed
in Section 262.
Within 120 days after the Effective Time, any record holder of shares of
Biorelease common stock who has complied with the requirements for exercise
of appraisal rights will be entitled, upon written request, to receive from
Biorelease a statement setting forth the aggregate number of shares of
Biorelease common stock with respect to which demands for appraisal have been
44
received and the aggregate number of holders of such shares. Such statements
must be mailed within 10 days after a written request therefor has been
received by Biorelease.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the holders of shares
of Biorelease common stock entitled to appraisal rights and will appraise the
"fair value" of the shares of Biorelease common stock, exclusive of any
element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. Holders considering seeking appraisal
should be aware that the fair value of their shares of Biorelease common
stock as determined under Section 262 could be more than, the same as or less
than the current market value of the Biorelease common stock. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings. More specifically, the Delaware Supreme Court has stated that:
"Fair value, in an appraisal context, measures 'that which has been taken
from the shareholder, viz., his proportionate interest in a going concern.'
In the appraisal process the corporation is valued 'as an entity,' not merely
as a collection of assets or by the sum of the market price of each share of
its stock. Moreover, the corporation must be viewed as an on-going
enterprise, occupying a particular market position in the light of future
prospects." In addition, Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
shareholder's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Biorelease common stock have been appraised. The costs of the
action may be determined by the Court and taxed upon the parties as the Court
deems equitable. The Court may also order that all or a portion of the
expenses incurred by any holder of shares of Biorelease common stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the
shares of Biorelease common stock entitled to appraisal.
Any holder of shares of Biorelease common stock who has duly demanded an
appraisal in compliance with Section 262 will not, after the Effective Time,
be entitled to vote the shares of Biorelease common stock subject to such
demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions
payable to holders of record of shares of Biorelease common stock as of a
date prior to the Effective Time).
If any holder of shares of Biorelease common stock who demands appraisal of
shares under Section 262 fails to perfect, or effectively withdraws or loses,
the right to appraisal, as provided in the DGCL, the shares of Biorelease
common stock of such holder will remain as shares of Biorelease common stock.
A holder of shares of Biorelease common stock will fail to perfect, or will
effectively lose, the right to appraisal if no petition for appraisal is
filed within 120 days after the Effective Time. A holder may withdraw a
demand for appraisal by delivering to Biorelease a written withdrawal of the
demand for appraisal and acceptance of the Merger, except that any such
attempt to withdraw made more than 60 days after the Effective Time will
require the written approval of Biorelease and, once an appraisal proceeding
is commenced, such proceeding may not be dismissed as to any shareholder
without the approval of the Court.
45
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights.
The foregoing is a summary of certain of the provisions of Section 262 of the
DGCL and is qualified in its entirety by reference to the full text of such
Section, a copy of which is attached hereto as Appendix III.
Effective Time
Subject to the provisions of the Merger Agreement, Biorelease and PMC shall
cause the Merger to be consummated by the concurrent filing, as soon as
practicable on or after the Closing (as hereafter defined), of a Certificate
of Merger with the Secretary of State of the State of Delaware in accordance
with the relevant provisions of Delaware law and the Secretary of State of
the State of Utah in accordance with the relevant provisions of Utah law. The
closing of the Merger (the "Closing") shall take place at the offices of
Berry Moorman P.C., at a time and date to be specified by the parties, which
shall be no later than the second business day after the satisfaction or
waiver of the conditions set forth in the Merger Agreement, or at such other
time, date and location as Biorelease and PMC agree in writing. The Closing
is anticipated to occur on or about February __, 2000.
Conversion of Shares of PMC Common Stock in the Merger
At the Effective Time, by virtue of the Merger and without any action on the
part of Biorelease, PMC or any of their security holders, each share of PMC
common stock issued and outstanding immediately prior to the Effective Time
will be canceled and extinguished and automatically converted into the right
to receive approximately 0 .150 shares of the common stock of Biorelease (the
"Exchange Ratio"), upon surrender of the certificate representing such share
of PMC common stock in the manner provided in the Merger Agreement (or in the
case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required)). However, each share of PMC common stock
held by PMC or owned by Biorelease or any direct or indirect wholly-owned
subsidiary of PMC or Biorelease immediately prior to the Effective Time shall
be canceled and extinguished without any conversion thereof.
The Exchange Ratio shall be adjusted to reflect appropriately the effect of
any stock split, reverse stock split, stock dividend (including any dividend
or distribution of securities convertible into Biorelease common stock or PMC
common stock), reorganization, recapitalization, reclassification or other
like change with respect to Biorelease common stock or PMC common stock
occurring on or after the date hereof and prior to the Effective Time.
No fraction of a share of Biorelease common stock will be issued by virtue of
the Merger, but in lieu thereof, each holder of shares of PMC common stock
who would otherwise be entitled to a fraction of a share of Biorelease common
stock (after aggregating all fractional shares of Biorelease common stock
that otherwise would be received by such holder) shall be entitled to receive
from Biorelease a number of shares rounded to the nearest whole share (i.e.,
fractions of less than .5 will be rounded down and fractions of .5 or more
will be rounded up).
46
Promptly after the Effective Time, Biorelease, acting thought the Exchange
Agent, will deliver to each PMC stockholder of record as of such date a
letter of transmittal with instructions to be used by such stockholder in
surrendering certificates which, prior to the Merger, represented shares of
PMC common stock and which, pursuant to the Merger, will be exchanged for
shares of Biorelease common stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY
THE HOLDERS OF PMC COMMON STOCK UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL
FROM THE EXCHANGE AGENT.
Conversion of Shares of PMC Series A Convertible Preferred Stock in the Merger
At the Effective Time, by virtue of the Merger and without any action on the
part of Biorelease, PMC or any of their security holders, each share of PMC
Series A Convertible Preferred Stock issued and outstanding immediately prior
to the Effective Time will be canceled and extinguished and automatically
converted into the right to receive one share of Biorelease Series A
Convertible Preferred Stock upon surrender of the certificate representing
such share of PMC Series A Convertible Preferred Stock in the manner provided
in the Merger Agreement (or in the case of a lost, stolen or destroyed
certificate, upon delivery of an affidavit (and bond, if required)).
Promptly after the Effective Time, Biorelease, acting thought the Exchange
Agent, will deliver to each holder of record of PMC Series A Preferred Stock
as of such date a letter of transmittal with instructions to be used by them
in surrendering certificates which, prior to the Merger, represented shares
of PMC Series A Preferred Stock and which, pursuant to the Merger, will be
exchanged for shares of Biorelease Series A Preferred Stock. CERTIFICATES
SHOULD NOT BE SURRENDERED BY THE HOLDERS OF PMC SERIES A CONVERTIBLE
PREFERRED STOCK UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT.
Assumption of Stock Options and Warrants
At the Effective Time, each outstanding option or warrant to purchase shares
of PMC common stock (each, a "PMC Stock Option" or a "PMC Warrant"), whether
or not exercisable, and whether or not vested, shall by virtue of the Merger
and without any further action on the part of PMC or the holder thereof, be
assumed by Biorelease. Each PMC Stock Option or PMC Warrant so assumed by
Biorelease will continue to have, and be subject to, the same terms and
conditions of such options immediately prior to the Effective Time, except
that each option or warrant will be or become exercisable for a certain
number of shares of Biorelease common stock rather than shares of PMC common
stock, as adjusted to reflect the Exchange Ratio, and at an exercise price
adjusted to reflect the Exchange Ratio.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
Biorelease and PMC relating to, among other things, (i) their incorporation,
existence, good standing, corporate power and similar corporate matters; (ii)
their capitalization; (iii) their authorization, execution, delivery and
performance and the enforceability of the Merger Agreement and related
matters; (iv) the absence of conflicts, violations and defaults under their
corporate charters and bylaws and certain
47
other agreements and documents; (v) their pending or threatened litigation;
and (vi) the absence of any occurrence or event that could reasonably be
expected to have a material adverse effect on the assets, business, financial
condition, operations or prospects (a "Material Adverse Effect") of PMC or
Biorelease, as applicable.
PMC has provided certain additional representations and warranties relating
to, among other things, (i) certain of its audited financial statements; (ii)
the absence of undisclosed liabilities; (iii) ownership of its properties;
(iv) material contracts and no defaults thereunder; (v) its Intellectual
Property Rights; (vi) tax matters; (vii) its employee benefits plans; (viii)
its insurance coverage; and (ix) environmental matters.
Biorelease has also provided certain additional representations and
warranties as to documents and reports filed by Biorelease with the
Commission and the accuracy and completeness thereof.
Conduct of Biorelease's and PMC's Business Prior to the Merger
During the period from the date of the Merger Agreement and continuing until
the earlier of the termination of the Merger Agreement pursuant to its terms
or the Effective Time, PMC and Biorelease have each agreed (except to the
extent that the other shall otherwise consent in writing) to carry on its
business in the ordinary course in substantially the same manner as
heretofore conducted and in compliance in all material respects with all
applicable laws and regulations, to pay its debts and taxes when due (subject
to good faith disputes over such debts or taxes), to pay or perform other
material obligations when due, and to use all reasonable efforts consistent
with past practice and policies to preserve intact its present business
organization, keep available the services of its present officers and key
employees, and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, all with the goal of preserving unimpaired its goodwill and ongoing
businesses at the Effective Time. However, as described previously,
Biorelease, before or simultaneously with the Merger, intends to distribute
all of the capital stock of BTI to the persons who were shareholders of
Biorelease before the Merger.
Conditions To The Merger
The respective obligations of each party to the Merger Agreement to effect
the Merger are subject to the satisfaction at or prior to the Closing of the
following conditions:
o the Merger Agreement and the Merger and other transactions contemplated
thereby shall have been approved and adopted by PMC's and Biorelease's
stockholders by the requisite vote under applicable law and their
certificate of incorporation;
o the SEC shall have declared the registration statement, of which this
document is a part, effective and no stop order suspending the
effectiveness of the registration statement, or any part thereof shall
have been issued and no proceeding for that purpose, and no similar
proceeding in respect of this Proxy Statement/Prospectus, shall have
been initiated or threatened in writing by the SEC;
48
o no governmental entity shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the
Merger illegal or otherwise prohibiting consummation of the Merger;
o PMC shall have received a written opinion from its legal counsel to the
effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code.
o At some time within the six months prior to the Closing, PMC shall have
raised sufficient funds through the sale of preferred stock, common
stock and/or warrants or from its operation so that it will have
Adjusted Cash (as defined below) of at least $2,000,000 as shown on a
balance sheet attested to by PMC's president and CFO. For purposes of
the foregoing, the Adjusted Cash shall equal the cash and cash
equivalents shown on that balance sheet plus $2,139,460 (PMC's current
liabilities and long term liabilities as of June 30, 1999) minus the
current and long term liabilities shown on that balance sheet. As of
the closing, the Adjusted Cash shall equal at least $1,000,000.
In addition, the obligation of PMC to consummate and effect the Merger shall
be subject to the satisfaction on or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by
PMC:
o Each representation and warranty of Biorelease contained in the Merger
Agreement shall be true and correct.
o Biorelease shall have performed or complied in all material respects
with all agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Closing and PMC
shall have received a certificate to such effect signed on behalf of
Biorelease by an authorized officer of Biorelease;
o No Material Adverse Effect with respect to Biorelease shall have
occurred since the date of the Merger Agreement.
o Biorelease shall have spun off or liquidated its operating subsidiary,
Biorelease Technologies, Inc. ("BTI").
o Biorelease shall have a net worth of at least $0, after accounting for
all expenses to be paid by Biorelease pursuant to the Merger Agreement
and the spin off of its subsidiary, BTI. That net worth shall be shown
on an unaudited balance sheet prepared by Biorelease's independent
auditors.
o Dr. R. Bruce Reeves, President and a principal shareholder of
Biorelease, will execute and deliver to PMC a certificate in which he
warrants and represents that, to the best of his knowledge after due
investigations, the representations and warranties made by Biorelease
in the Merger Agreement are true and correct.
The obligations of Biorelease to consummate and effect the Merger shall be
subject to the satisfaction on or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by
Biorelease:
o Each representation and warranty of PMC contained in the Merger
Agreement shall be true and correct.
o PMC shall have performed or complied in all material respects with all
agreements and covenants required by the Merger Agreement to be
performed or complied with by it at or prior to the Closing and
Biorelease shall have received a certificate to such effect signed on
behalf of PMC by an authorized officer of PMC.
49
o No material adverse effect with respect to PMC shall have occurred
since the date of the Merger Agreement.
o Each control person of PMC shall have entered into agreement that
restricts their ability to resell the Biorelease common stock received
by them and each of such agreements will be in full force and effect as
of the Effective Time.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the requisite approval of the stockholders of
PMC or Biorelease, in the following circumstances:
o by mutual written consent duly authorized by the Biorelease Board and
PMC Board.
o by either PMC or Biorelease if the Merger shall not have been
consummated by March 31, 2000 for any reason; PROVIDED, HOWEVER, that
the right to terminate the Merger Agreement due to the failure of the
Merger to occur prior to such date shall not be available to any party
whose action or failure to act has been a principal cause of, or
resulted in, the failure of the Merger to occur on or before such date
and such action or failure to act constitutes a breach of the Merger
Agreement.
o by either PMC or Biorelease if a governmental entity shall have issued
an order, decree or ruling or taken any other action in any case having
the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable.
o by either PMC or Biorelease if the required approvals of the
stockholders of PMC contemplated by the Merger Agreement has not been
obtained (except that PMC shall not be able to terminate the Merger
Agreement for this reason where the failure to obtain approval of PMC's
stockholders was caused by the action or failure to act of PMC in
breach of the Merger Agreement).
o by either PMC or Biorelease if the required approvals of the
stockholders of Biorelease contemplated by the Merger Agreement has not
been obtained (except that Biorelease shall not be able to terminate
the Merger Agreement for this reason where the failure to obtain
approval of Biorelease's stockholders was caused by the action or
failure to act of Biorelease in breach of the Merger Agreement).
o by PMC, upon a breach of any representation, warranty, covenant, or
agreement on the part of Biorelease set forth in the Merger Agreement,
or if any representation or warranty of Biorelease shall have become
untrue, provided, that if such inaccuracy in Biorelease's
representations and warranties or breach by Biorelease is curable by
Biorelease through the exercise of its commercially reasonable efforts,
then PMC may not terminate the Merger Agreement for 30 days after
notice from PMC of such breach, provided that Biorelease continues to
exercise such commercially reasonable efforts to cure such breach; and
50
o by Biorelease, upon a breach of any representation, warranty, covenant
or agreement on the part of PMC set forth in the Merger Agreement, or
if any representation or warranty of PMC shall have become untrue,
provided, that if such inaccuracy in PMC's representations and
warranties or breach by PMC is curable by PMC through the exercise of
its commercially reasonable efforts, then Biorelease may not terminate
the Merger Agreement for 30 days after notice from Biorelease of such
breach, provided that PMC continues to exercise such commercially
reasonable efforts to cure such breach.
Fees and Expenses
Except as set forth below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated thereby shall be paid
by the party incurring such expenses whether or not the Merger is
consummated. As used herein, "Post Form 10K" when referring to any expenses
incurred by Biorelease shall refer to expenses that relate to periods after
Biorelease files its Form 10K for the year ended June 30, 1999 and shall not
include any expenses incurred by Biorelease in preparing that Form 10K or the
audited financial statements included therein.
PMC shall pay the following expenses relating to the Merger: the legal fees
of its securities counsel, (including all legal fees, expenses related to the
preparation and filing of the Form S-4 Registration Statement and the
preparation of the Proxy Statement/Prospectus); all audit costs concerning
the pre-closing and post-closing audit of PMC, (including the cost of
producing any audited or unaudited pro-forma financial statements and/or any
audited or unaudited stub financial statements for PMC); any Post Form 10K
auditor fees incurred by Biorelease for the production of similar pro-forma
or stub period financial statements relating to the Merger or the filing of
any quarterly reports for any Post Form 10K periods; the Post Form 10K legal
and other professional fees incurred by Biorelease relating to the Merger;
Biorelease's Post Form 10K transfer agent fees and expenses; the Delaware
franchise fees and filing fees (to complete the pre-closing capital structure
changes called for in the Merger Agreement); all costs relating to press
releases made by Biorelease; the cost of printing new stock certificates; the
printing, duplication and mailing costs of the shareholders letter, proxy
statement, meeting notice, and transmittal form; and the post-closing stock
transfer fees for the re-issuance of replacement stock certificates in the
new name of Biorelease. The maximum amount of Biorelease's fees and expenses
that will be required to be paid by PMC hereunder shall be $40,000, including
the $10,000 previously advanced by PMC. The Post Form 10K expenses of
Biorelease that will be reimbursed by PMC hereunder shall not include any
fees or expenses relating to the spin-off or liquidation of Biorelease's
subsidiary, BTI.
Except as set forth above with respect to certain Post Form 10K expenses of
Biorelease that will be paid by PMC, Biorelease shall pay the costs related
to initiating the following actions: the legal fees of its securities
counsel; the cost of an opinion letter by legal counsel regarding present or
past litigation; audit fees to its auditors for pre-closing audit work
concerning Biorelease only; the cost of preparation of board minutes and
resolutions of Biorelease; shareholder consent resolutions; cover letter to
transfer agent; various letters to NASD, and other regulatory agencies
(concerning the required advance notices of the impending transaction and
reverse-stock split); a
51
letter to apply for a new CUSIP number; assistance to PMC on choice and
printing of a new stock certificate; and a draft of a transmittal form for
the new name replacement stock certificate.
Biorelease will either spinoff all of the shares of capital stock of its
subsidiary, Biorelease Technologies Inc. ("BTI"), to the persons who were
shareholders of Biorelease prior to the Merger or sell of the assets of BTI
and distribute the net proceeds to those shareholders. Except as set forth
below, Biorelease will pay all costs of completing those transactions. In the
event Biorelease desires to spinoff the shares of capital stock of BTI, then
Biorelease will, at its expense, prepare and file any registration statement
required to be filed with the SEC and state securities administrators to
enable those shares to be issued and pay all costs of printing and
distributing the prospectus to those shareholders. However, if that
prospectus is able to be distributed to the shareholders of Biorelease
concurrently with the proxy statement for the meeting of shareholders of
Biorelease called to vote to approve the Merger, then PMC will pay up to
$5,000 of the cost of printing that prospectus and will also pay the cost of
mailing that prospectus to the shareholders of Biorelease.
Accounting Treatment
The Merger will be treated as a purchase for accounting and financial
reporting purposes.
Restrictions on Resale of Biorelease Common Stock
The Biorelease common stock to be issued in the Merger will have been
registered under the Securities Act of 1933, as amended (the "Securities
Act") by a Registration Statement on Form S-4, thereby allowing those shares
to be traded without restriction by all former holders of PMC common stock
who (i) are not deemed to be "affiliates" of PMC at the time of the PMC
Special Meeting (as "affiliates" is defined for purposes of Rule 145 under
the Securities Act) and (ii) who do not become "affiliates" of Biorelease
after the Merger.
Shares of Biorelease common stock received by those stockholders of PMC who
are deemed to be affiliates of PMC may be resold without registration under
the Securities Act only as permitted by Rule 145 under the Securities Act or
as otherwise permitted under the Securities Act. The Merger Agreement
requires PMC to use commercially reasonable efforts to cause its affiliates
to enter into agreements not to make any public sale of any Biorelease common
stock received upon consummation of the Merger, except in compliance with
Rule 145 under the Securities Act. In general, Rule 145, as currently in
effect, imposes restrictions on the manner in which such affiliates may make
resales of Biorelease common stock that such affiliates, and others
(including persons with whom the affiliates act in concert), may sell within
any three-month period. These restrictions will generally apply for at least
a period of one year after the Merger (or longer if the person is an
affiliate of Biorelease).
This Proxy Statement/Prospectus does not cover any resales of Biorelease
common stock received by persons who are deemed to be affiliates of PMC.
DESCRIPTION OF BIORELEASE CAPITAL STOCK
Common Stock
Biorelease is authorized to issue fifty million (50,000,000) shares of common
stock, $.01 par value per share, of which ________ shares were issued and
outstanding as of the Record Date. Each outstanding share of Biorelease
common stock is entitled to one vote, either in person or by proxy, on all
matters that may be voted upon by the owners thereof at meetings of the
Biorelease stockholders.
The holders of Biorelease common stock (i) have equal ratable rights to
dividends from funds legally available therefor, when, and if declared by the
Board of Directors of Biorelease; (ii) are entitled to share ratably in all
of the assets of Biorelease available for distribution to holders of common
stock upon liquidation, dissolution or winding up of the affairs of
Biorelease; (iii) do not have preemptive, subscription or conversion rights,
or redemption or sinking fund provisions
52
applicable thereto; and (iv) are entitled to one non-cumulative vote per
share on all matters on which stockholders may vote at all meetings of the
Biorelease stockholders.
Preferred Stock
Biorelease currently does not have any preferred stock authorized. At the
Biorelease Special Meeting, the shareholders of Biorelease will be asked to
authorize a total of 1,000,000 shares of preferred stock. See "Proposal Two -
Approval of the Charter Amendment to Authorize 1,000,000 Shares of Preferred
Stock" for a description of the proposed preferred stock.
Effect of Delaware Antitakeover Statute
Biorelease is subject to Section 203 of the Delaware General Corporation Law
(the "Antitakeover Law"), which regulates corporate acquisitions. The
Antitakeover Law prevents certain Delaware corporations, including those
whose securities are listed for trading on the Nasdaq National Market, from
engaging, under certain circumstances in a "business combination" with any
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder. For purposes of the
Antitakeover Law, a "business combination" includes, among other things, a
merger or consolidation involving Biorelease and the interested stockholder
and the sale of more than ten percent (10%) of Biorelease's assets. In
general, the Antitakeover Law defines an "interested stockholder" as any
entity or person beneficially owning 15% or more the outstanding voting stock
of Biorelease and any entity or person affiliated with or controlling or
controlled by such entity or person. A Delaware corporation may "opt out" of
the Antitakeover Law with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from amendments approved by the holders of at least a
majority of Biorelease's outstanding voting shares. Biorelease has not "opted
out" of the provisions of the Antitakeover Law.
Transfer Agent
The Transfer Agent and Registrar for the Biorelease common stock is ________
DESCRIPTION OF PMC CAPITAL STOCK
As of the date of this Proxy Statement/Prospectus, the authorized capital
stock of PMC consists of 150,000,000 shares of common stock, par value $.001
per share, and 10,000,000 shares of Preferred Stock, par value $.001 per
share. The following description of PMC's capital stock does not purport to
be complete and is subject to and qualified in its entirety by PMC's Articles
of Incorporation and Bylaws and by the provisions of applicable Utah law.
Common Stock
Subject to preferences that may be applicable to any outstanding preferred
stock, holders of PMC common stock are entitled to (a) receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, (b) cast one vote per share on all matters to
53
be voted upon by the stockholders, and (c) in the event of a liquidation,
dissolution or winding up of PMC, share ratably in all assets remaining after
payment of PMC's liabilities and the liquidation preference of any
outstanding preferred stock. Holders of PMC common stock have no cumulative
voting rights or preemptive rights nor any rights to convert their common
stock into any other securities, and there are no redemption provisions with
respect to such shares. All of the outstanding shares of PMC common stock are
fully paid and non-assessable. The rights, preferences and privileges of
holders of PMC common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of the PMC Series A Convertible Preferred
Stock and of any series of preferred stock which PMC may designate and issue
in the future. Additional shares of PMC common stock may be issued without
shareholder approval.
Preferred Stock
PMC is authorized to issue up to 10,000,000 shares of preferred stock, of
which 100,000 shares have been designated as the Series A Convertible
Preferred Stock as described below. PMC's Board of Directors has authority,
without any further vote or action by the stockholders, to provide for the
issuance of the shares of preferred stock in series, to establish from time
to time the number of shares to be included in each such series and to fix
the designations, preferences and relative participating, optional or other
special rights, and qualifications or restrictions of the shares of each such
series and to determine the voting powers, if any, of such shares. The
issuance of preferred stock can, among other things, (a) adversely affect the
rights of existing stockholders and the amount of earnings and assets
available for distribution to holders of common stock, (b) delay, defer or
prevent a change in control of PMC, and (c) make the removal of the present
management of PMC more difficult.
Series A Convertible Preferred Stock
General
PMC has authorized 100,000 shares of Series A Convertible Preferred Stock.
Pursuant to the Merger, each share of the PMC Series A Convertible Preferred
Stock will be exchanged for a share of Biorelease Series A Convertible
Preferred Stock that will have the same terms and conditions except that the
conversion price will be adjusted to reflect the exchange ratio used to
convert the PMC common stock into common stock of Biorelease. In order to
simplify the following discussion, the conversion prices set forth below are
the conversion prices that will be in effect with respect to the shares of
common stock of Biorelease after the Merger and references to "the Company"
refer both to PMC prior to the Merger and to Biorelease after the Merger, as
appropriate. References to shares of common stock refers to shares of
Biorelease common stock after the Merger and the Reverse Split.
Rank
Each share of the Series A Convertible Preferred Stock shall have the same
relative rights and preferences as, and shall be identical in all respects
with, all other shares of the Series A Convertible Preferred Stock. Except as
may be authorized by a vote of the holders of the Series A Convertible
Preferred Stock , the Series A Convertible Preferred Stock shall rank senior
to any other series of preferred stock now or hereafter issued by the
Company.
54
Dividends Payable in Cash and Restricted Stock
The Series A Convertible Preferred Stock has been and will be issued for
$100.00 per share (the "Issue Price"). The holders of shares of the Series A
Convertible Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors of the Company and out of the assets of
the Company legally available therefor, cumulative cash dividends at the rate
per annum of Twelve percent (12%) of the Issue Price per share, from the date
of issuance of such shares until such shares are converted or redeemed, and
payable quarterly on the last day of March, June, September and December in
each year, commencing on December 31, 1999.
Notwithstanding the foregoing, during the period beginning January 1, 2002,
if there is an established trading market for the Company's common stock, the
Company shall have the option to pay the dividends in the form of shares of
the Company's common stock rather than in cash. In that event, the shares to
be issued would be valued at Fifty percent (50%) of the Current Market Price
Per Share (as defined below) of the Company's common stock on the dividend
payment date. For the purpose of this subsection, the Current Market Price
Per Share of common stock at any date shall be the average of the daily
closing prices for the twenty (20) business days before the date of such
computation. The closing price for each day shall be (a) the last reported
sale price regular way or, in case no reported such sale takes place on such
day, the average of the closing bid and asked prices regular way for such
day, in either case on the principal national securities exchange in the
United States on which the shares are listed or admitted to trading, or (b)
if the shares are not listed or admitted to trading on any national
securities exchange in the United States, but are traded in the
over-the-counter market in the United States, the average of the closing bid
and asked prices of the common stock on NASDAQ, the OTCBB or any comparable
system, or (c) if the common stock is not listed on NASDAQ, the OTCBB or a
comparable system, then the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Company for that purpose. All shares
issued pursuant to this paragraph will be "restricted securities" as that
term is defined in Rule 144 promulgated by the Securities & Exchange
Commission and therefore may not be freely sold or transferred by the
recipient unless those shares are subsequently registered under the
Securities Act of 1933 or an exemption from that registration is available.
Dividends on the Series A Convertible Preferred Stock shall be payable before
any dividends or distributions shall be paid upon, or declared and set apart
for, any Junior Stock (as defined below) and before any repurchase,
redemption, retirement or other acquisition for valuable consideration of any
shares of Junior Stock (other than upon conversion thereof into common stock)
shall be effected, so that if in any quarterly dividend period all dividends
at the rate fixed above accrued from the date of issuance of any shares of
the Series A Convertible Preferred Stock shall not have been paid, or
declared and set apart for payment, the deficiency shall be fully paid or set
apart for payment, together with interest thereon as provided above, before
any dividends or distributions shall be paid upon, or set apart for, or any
repurchase, redemption, retirement or other acquisition for valuable
consideration is effected of, the Junior Stock (other than upon conversion
thereof into common stock). As used herein "Junior Stock" shall mean the
Company's common stock and each other class or series of the Company's
capital stock, whether common or preferred, the terms of which do not provide
that shares of that class or
55
series shall rank senior to or on a parity with the Series A Convertible
Preferred Stock as to distributions of dividends and distributions upon the
liquidation of the Company.
Preference on Liquidation
The Series A Convertible Preferred Stock shall be preferred with respect to
both earnings and assets of the Company. In the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the Company, the
holders of shares of the Series A Convertible Preferred Stock shall be
entitled, before any payment or distribution of the assets of the Company
shall be made or set apart to the holders of Junior Stock, to receive from
the net assets of the Company available for distribution to shareholders cash
in an amount equal to the Issue Price of such shares, together with any
accrued and unpaid dividends and any other amounts which may be payable with
respect to such shares to the date of final distribution to the holders of
the Series A Convertible Preferred Stock. The holders of shares of the Series
A Convertible Preferred Stock shall be entitled to no further participation
in any assets of the Company. Neither the consolidation or merger of the
Company with or into any other corporation, nor the merger or consolidation
of any other corporation into or with the Company, nor the sale, lease,
exchange or conveyance of all or any part of the assets of the Company, shall
be deemed to be a dissolution, liquidation or winding-up of the Company for
the purposes of this paragraph.
Voting
Except as may otherwise be required by law or for certain specified events
that may alter the rights of the holders of the Series A Convertible
Preferred Stock, the holders of shares of the Series A Convertible Preferred
Stock shall not be entitled to vote upon any matter.
Redemption by the Company
Commencing January 1, 2005, the Company shall have the right, but not the
obligation, to redeem up to One Hundred percent (100%) of the then
outstanding shares of Series A Convertible Preferred Stock at a price of
$109.00 per share plus all accrued and unpaid dividends (and interest, if
any) on such shares through and including the date selected by the Company
for such redemption (the "Redemption Date"). In the event of any redemption
pursuant to this paragraph, the Company shall determine the shares to be
redeemed by random selection among all of the outstanding Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock shall
not be entitled to the benefit of any sinking fund to be applied to the
redemption thereof.
Conversion
Subject to the terms and conditions of this paragraph, each of the holders of
shares of the Series A Convertible Preferred Stock shall have the option, at
any time and from time to time, to convert each of those shares into shares
of Biorelease common stock at a rate of one share of common stock for each
$3.00 of Issue Price of the shares so converted (with the conversion price
subject to certain specified adjustments) (such price or such price as last
adjusted, as the case may be, being referred to herein as the "Conversion
Price"). In order to exercise such conversion privilege, any such holder
shall surrender to the Company at its principal offices (i) the certificates
for the shares of the Series A Convertible Preferred Stock to be converted,
(ii) a
56
notice (a "Conversion Notice") that such holder elects to convert such shares
and (iii) an investment letter in form satisfactory to the Company to ensure
compliance with the provisions of the Securities Act of 1933 and applicable
state securities laws. In the event that such holder elects to convert only a
portion of the number of shares of the Series A Convertible Preferred Stock
covered by a certificate surrendered for conversion, the Company shall issue
and deliver to such holder, a certificate or certificates for the number of
full shares of the Series A Convertible Preferred Stock not converted.
The Conversion Price will be subject to change in the event of a stock split,
combination or reclassification of the common stock or certain other events.
The Conversion Price will also be subject to adjustment on a date that is the
later of: (a) December 31, 2000 or (b) twelve (12) months after the
consummation of the Merger (the "Adjustment Date") if the Current Market
Price Per Share of the Company's common stock (as defined under "--Dividends
Payable in Cash and Restricted Stock" above) is less than $3.00 per share. In
that event, the Conversion Price will be adjusted to equal to the Current
Market Price Per Share but not less than $1.50 per share.
Warrants
General
PMC has authorized 100,000 Class A Common Stock Purchase Warrants. Pursuant
to the Merger Agreement, the Warrants will become exercisable for shares of
Biorelease common stock with the exercise price per share and the number of
shares adjusted to reflect the exchange ratio used to convert the PMC common
stock into Biorelease common stock. In order to simplify the following
discussion, the exercise prices set forth below and the number of shares are
the exercise prices and number of shares that will be in effect with respect
to the shares of Biorelease common stock after the Merger and references to
"the Company" refer both to PMC and to Biorelease after the Merger, as
appropriate. References to shares of common stock refers to shares of
Biorelease common stock after the Merger and the Reverse Split.
Exercise Price and Period
Each Warrant entitles the holder to purchase Ten (10) shares of Biorelease
common stock at an exercise price of $4.00 per share during the period ending
December 31, 2004.
The exercise price will be subject to change in the event of a stock split,
combination or reclassification of the common stock or certain other events.
The exercise price will also be subject to adjustment on a date that is the
later of: (a) December 31, 2000 or (b) twelve (12) months after the
consummation of the Biorelease Merger (the "Adjustment Date") if the Current
Market Price Per Share of the Company's Common Stock (as defined under
"-Dividends Payable in Cash and Restricted Stock" above) is less than $3.00
per share. In that event, the Conversion Price will be adjusted to equal 133%
of the Current Market Price Per Share but not less than $2.00 per share.
57
Restricted Shares and Registration Rights
All of the shares issued upon conversion of the Series A Preferred Stock and
exercise of the Warrants will be "restricted securities" as defined in Rule
144 unless they are issued pursuant to an effective registration statement
under the Securities Act of 1933. The Company agreed to register all of the
shares of common stock underlying the Series A Convertible Preferred Stock
and the Warrants in a registration statement on the appropriate form with the
Commission so that the persons who require those shares shall be entitled to
freely sell those shares in the public market. The Company will file that
registration statement not later than 90 days after the effective date of the
Merger (or such later date as may be agreed to by the broker dealers who
acted as Placement Agents for the sale of the Series A Convertible Preferred
Stock to enable the Company to prepare and include audited financial
statements for the year ended March 31, 2000 in that registration statement).
If the Company does not file that registration statement within 120 days
after the effective date of the Biorelease Merger (or such later date as may
be agreed to by the Placement Agents) then the conversion price of the Series
A Preferred Stock and the exercise price of the Warrants will be reduced by
___% of what they were prior to that adjustment.
Dividend Policy
PMC has never paid a cash dividend on its common stock and does not
anticipate paying cash dividends on its common stock in the foreseeable
future. PMC's policy is to retain earnings to provide funds for the operation
and expansion of its business. In addition, any loan agreement that PMC may
enter into with any bank may prohibit it from paying dividends without that
bank's consent.
Transfer Agent and Registrar
PMC currently acts as its own transfer agent and registrar for the PMC common
stock and PMC Series A Convertible Preferred Stock.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF PMC AND BIORELEASE
The Charters and Bylaws of PMC and Biorelease
After consummation of the Merger, the holders of PMC common stock and PMC
Series A Convertible Preferred Stock who receive Biorelease common stock and
Series A Convertible Preferred Stock under the terms of the Merger Agreement
will become stockholders of Biorelease. As stockholders of PMC, their rights
are currently governed by Utah law, by PMC's Articles of Incorporation, as
amended (the "PMC Certificate"), and by PMC's Bylaws, (the "PMC Bylaws"). As
stockholders of Biorelease, their rights will be governed by Delaware law, by
Biorelease's Certificate of Incorporation, as amended by the Charter
Amendment and the Reverse Split (the "Biorelease Certificate"), and by
Biorelease's Bylaws (the "Biorelease Bylaws"). The following discussion
summarizes the material differences between the rights of holders of PMC
common stock and holders of Biorelease common stock and differences
58
between the charters and bylaws of PMC and Biorelease. This summary does not
purport to be complete and is qualified in its entirety by reference to the
PMC Certificate and PMC Bylaws, the Biorelease Certificate and Biorelease
Bylaws, and the relevant provisions of Delaware law.
Certain Differences Between Delaware and Utah Corporation Law
Delaware law differs in certain respects from Utah law. Although it is not
practical to compare all the differences between the laws governing
corporations of Utah and Delaware, the following discussion provides a
summary of the material differences which may significantly affect the rights
of shareholders. Those differences can be determined in full by reference to
the Utah Revised Business Corporation Act (the "Utah RBCA") and to the
Delaware General Corporation Law (the "Delaware GCL"). In addition, both Utah
and Delaware law provide that some of the statutory provisions as they affect
various rights of holders may be modified by provisions in the certificate of
incorporation or by-laws of the corporation.
Shareholder Appraisal Rights. Shareholder appraisal rights are statutory
rights of dissenting shareholders to demand that, upon consummation of
certain reorganizations, the corporation purchase their shares at an
appraised fair market value. Delaware law provides rights of appraisal to
stockholders in the event of a merger or consolidation, except (a) a merger
by a corporation, the shares of which are either listed on a national
securities exchange or widely held (by more than 2,000 stockholders of
record) if such stockholders receive shares of the surviving corporation or
of a listed or widely held corporation, and (b) a merger, if the corporation
in which the dissenter is a stockholder survives the merger and no vote of
such corporation's stockholders is required to approve the merger. Under
Delaware law, no vote of the stockholders of a corporation surviving a merger
is required if the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately
prior to such issuance and if certain other conditions are met. Delaware law
provides that any corporation may stipulate in its certificate of
incorporation that appraisal rights shall be available for shares of its
stock as a result of an amendment to its certificate of incorporation, any
merger in which the corporation is a constituent corporation, or the sale of
all or substantially all of the assets of the corporation. The Delaware
Certificate does not provide for such appraisal rights. A copy of Section 262
of the Delaware GLL regarding appraisal rights is set forth herein as Annex
C.
The Utah law grants shareholder appraisal rights with many of its rights and
exceptions similar to those under the Delaware law. A copy of Part 13 of the
Utah RBCA regarding appraisal rights Utah Right statute is attached hereto as
Appendix II.
Payment of Dividends and Repurchase of Shares of Stock. Under Delaware law, a
corporation may pay dividends only out of surplus (generally, the
stockholders' equity of the corporation less the par value of the capital
stock outstanding) or, if there exists no surplus, out of the net profits of
the corporation for the fiscal year in which the dividend is declared and/or
the preceding fiscal year. If the capital of the corporation has diminished
to an amount less than the aggregate amount of capital represented by issued
and outstanding stock having a liquidation preference, the corporation may
not declare and pay out of its net profits any dividends to the holders of
its common stock until the deficiency has been repaired.
59
In general, Delaware law provides that shares of a corporation's capital
stock may only be repurchased or redeemed by the corporation out of surplus.
To determine the surplus, assets and liabilities are valued at their current
fair market value. Assuming that such assets have a fair market value greater
than their book value and that liabilities have not increased in value to a
greater extent, such revaluation will increase the surplus of the corporation
and thereby permit the corporation to pay an increased dividend and/or to
repurchase a greater number of shares.
Under Utah law, a corporation may not make any distribution (including
dividends), whether in cash or other property, and repurchase of its shares
if, after giving affect to the distribution, (a) the corporation would not be
able to pay its debts as they become due in the normal course, or (b) its
total assets would be less than the sum of its total liabilities plus the
amount, if any, payable upon liquidation to holders of any preferred stock
with distribution rights superior to the rights of holders of common stock.
It is the present policy of the Board of Directors of Biorelease and PMC to
retain any earnings for use in their business.
Acquisition of Significant Shares of Stock. Section 203 of the Delaware GCL
regulates certain business combinations, including tender offers. Section 203
may have the effect of significantly delaying certain stockholders' ability
to acquire a significant equity interest in a Delaware corporation if such
acquisition is not approved by the Board of Directors. In general, Section
203 prevents an "Interested Stockholder" (defined generally as a person with
15% or more of a corporation's outstanding voting stock) of a Delaware
corporation from engaging in a "Business Combination" (defined to include
mergers and a variety of other transactions such as transfers of assets,
loans, and transactions that would increase the Interested Stockholder's
proportionate share of stock) with a Delaware corporation for three years
following the date that person became an Interested Stockholder unless, among
other things, before that person became an Interested Stockholder the board
of directors of the corporation approved the Business Combination or the
transaction which resulted in the stockholder becoming an Interested
Stockholder. Under Section 203, the restrictions described above do not apply
to certain Business Combinations proposed by an Interested Stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
Interested Stockholder during the previous three years or who became an
Interested Stockholder with the approval of a majority of the corporation's
directors. In addition, the restrictions under Section 203 do not apply if
the corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203. The Delaware
Certificate does not contain such a provision.
The Utah Control Share Acquisitions Act provides, among other things, that,
when any person obtains shares (or the power to direct the voting shares) of
"an issuing public corporation" such that the person's voting power equals or
exceeds any of three levels (20%, 33 1/3% or 50%), the ability to vote (or to
direct the voting of) the "control shares" is conditioned on approval by a
majority of the corporation's shares (voting in voting groups, if
applicable), excluding the "interested shares". Shareholder approval may
occur at the next annual meeting of the shareholders, or, if the acquiring
person requests and agrees to pay the associated costs of the corporation, at
a special meeting of the shareholders (to be held within fifty (50) days of
the corporation's receipt of the request by the acquiring person). If
authorized by the articles of incorporation or the Bylaws, the corporation
may redeem "control shares" at the fair market
60
value if the acquiring person fails to file an "acquiring person statement"
or if the shareholders do not grant voting rights to control shares. If the
shareholders grant voting rights to the control shares, and if the acquiring
person obtained a majority of the voting power, shareholders may be entitled
to dissenters' rights under the Utah RBCA. An acquisition of shares does not
constitute a control share acquisition if (i) the corporation's articles of
incorporation or bylaws provide that this Act does not apply, (ii) the
acquisition is consummated pursuant to a merger in accordance with the Utah
RBCA or (iii) under certain other specified circumstances.
Voting Rights with Respect to Extraordinary Corporate Transactions. Under
Delaware law, approval of mergers and consolidations and sales, leases or
exchanges of all or substantially all of the property or assets of a
corporation, requires the affirmative vote or consent of the holders of a
majority of the outstanding shares entitled to vote, except that, unless
required by the certificate of incorporation, no vote of shareholders of the
corporation surviving a merger is necessary if: (i) the merger does not amend
the certificate of incorporation of the corporation; (ii) each outstanding
share immediately prior to the merger is to be an identical share after the
merger and (iii) either no common stock of the corporation and no securities
or obligations convertible into common stock are to be issued in the merger,
or the common stock to be issued in the merger plus that initially issuable
on conversion of other securities issued in the merger does not exceed 20% of
the common stock of the corporation outstanding immediately before the
merger. Under Utah law, a merger, share exchange or sale of all or
substantially all of the assets of a corporation (other than a sale in the
ordinary course of the corporation's business) requires the approval of a
majority (unless the articles of incorporation, the Bylaws or a resolution of
the board of directors requires a greater number) of the outstanding shares
of the corporation (voting in separate voting groups, if applicable). No vote
of the shareholders of the surviving corporation in a merger is required if:
(i) the articles of incorporation of the surviving corporation will not be
changed; (ii) each shareholder of the surviving corporation whose shares were
outstanding immediately before the effective date of the merger will hold the
same number of shares, with identical designations, preferences, limitations
and relative rights, immediately after the merger; (iii) the number of voting
shares outstanding immediately after the merger, plus the number of voting
shares issuable as a result of the merger (either by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warrants issued pursuant to the merger), will not exceed by more than 20% of
the total number of voting shares of the surviving corporation outstanding
immediately before the merger; and (iv) the number of participating shares
(shares that entitle their holder to participate without limitation in
distributions) outstanding immediately after the merger, plus the number of
participating shares issuable as a result of the merger (either by the
conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by more
than 20% the total number of participating shares of the surviving
corporation outstanding immediately before the merger.
Shareholders Consent Without a Meeting. Under Delaware law, unless otherwise
provided in the certificate of incorporation, action requiring the vote of
stockholders, including the removal and election of directors, may be taken
without a meeting, without prior notice and without a vote, by the written
consent of stockholders having not less than the minimum number of votes that
would be necessary to take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
Under Utah law, unless otherwise provided in the articles of incorporation,
action requiring the vote of shareholders may be taken without a meeting and
without prior notice by one or more
61
written consents of the shareholders having not less than the minimum number
of votes that would be necessary to take such action at a meeting at which
all shares entitled to vote thereon were present and voted (if shareholder
action is by less than unanimous written consent, notice shall be provided to
the shareholders who did not consent at least ten (10) days before the
consummation of the transaction, action or event authorized by the
shareholders). However, any written consent for the election of directors
must be unanimous and the shareholders of any corporation in existence prior
to July 1, 1992, are required to adopt a resolution permitting action by less
than unanimous written consent otherwise, the shareholders are only permitted
to act by unanimous written consent.
Special Meetings of Shareholders. Under Delaware law, stockholders generally
do not have the right to call meetings of stockholders unless such right is
granted in the certificate of incorporation or bylaws. The Biorelease bylaws
provides that holders of at least a majority of shares eligible to vote for
election of directors may call a special meeting of stockholders. However, if
a corporation fails to hold its annual meeting within a period of 30 days
after the date designated therefor, or if no date has been designated for a
period of 13 months after its last annual meeting, the Delaware Court of
Chancery may order a meeting to be held upon the application of a
shareholder.
Under Utah law, special meetings of the shareholders may be called by: (i)
the board of directors (ii) the person or persons authorized by the Bylaws to
call a special meeting, or (iii) the holders of shares representing at least
10% of all votes entitled to be cast on any issue proposed to be considered
at the special meeting. The corporation shall give notice of the date, time
and place of the meeting no fewer than ten (10) and no more than sixty (60)
days before the meeting. Notice of a special meeting must include a
description of the purposes for which the special meeting is called. A
special meeting of shareholders of PMC may be called as provided for in the
statute.
Inspection of Books and Records. Under Delaware law, any stockholder of
record, upon written demand under oath stating the purpose thereof, has the
right during the usual hours for business to inspect for any proper purpose,
the corporation's stock ledger, a list of its stockholders and its other
books and records and to make copies or extract therefrom. Under Utah law,
upon providing the corporation with a written demand at least five business
days before the date the shareholder wishes to make an inspection, a
shareholder and his agent and attorneys are entitled to inspect and copy,
during regular business hours, (i) the articles of incorporation, bylaws,
minutes of shareholders meetings for the previous three years, written
communications to shareholders for the previous three years, names and
business addresses of the officers and directors, the most recent annual
report delivered to the State of Utah, and financial statements for the
previous three years and (ii) if the shareholder is acting in good faith and
for a proper purpose, excerpts from the records of the board of directors and
shareholders (including minutes of meetings, written consents and waivers of
notices), accounting records and shareholder lists.
Transactions with Officers and Directors. Utah law provides that every
director who is in any way, directly or indirectly, interested in a proposed
contract or transaction with the corporation is liable to account to the
corporation for any profit made as a consequence of the corporation entering
into such transaction unless such person (a) disclosed his or her interest at
the meeting of directors where the proposed transaction was first considered,
and, after his or her disclosure, the transaction was approved by the a
majority of the disinterested directors; (b) disclosed his or
62
her interest prior to a meeting or written consent of shareholders and, after
his or her disclosure, the transaction was approved by the a majority of the
disinterested shares; or (c) can show that the contract or transaction was
fair and reasonable to the corporation. Under Delaware law, contracts or
transactions in which a director or officer is financially interested are not
automatically void or voidable, if approved by the stockholders or the
directors under substantially the same circumstances as in Utah. Approval by
the shareholders, however, requires only a simple majority. Board approval
must be by a majority of the disinterested directors, but interested
directors may be counted for purposes of establishing a quorum.
Limitation on Liability of Directors; Indemnification of Officers and
Directors. Delaware law permits a corporation to adopt provisions in its
certificate of incorporation eliminating or limiting the personal liability
of a director to the corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director, with the following exceptions: (a) a
breach of the director's duty of loyalty; (b) payment of an unlawful stock
dividend or making an unlawful stock repurchase or redemption; (c) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law; or (d) in any transaction in which the director derived an
improper personal benefit. The Biorelease Certificate does not contain a
provision limiting the liability of directors as permitted by the Delaware
GCL.
Under Utah law, a corporation may, if so provided in its articles of
incorporation, its bylaws or in a shareholder resolution, eliminate or limit
the personal liability of a director to the corporation or its shareholders
for monetary damages due to any action taken or any failure to take action as
a director, except liability for: (a) improper financial benefits received by
a director; (b) intentional infliction of harm on the corporation or its
shareholders; (c) payment of dividends to shareholders making the corporation
insolvent; and (d) intentional violations of criminal law. The PMC
certificate contains a provision limiting the liability of directors as
permitted by the Utah RBCA.
The Delaware and Utah laws contain basically similar provisions governing
indemnification of officers and directors.
BIORELEASE STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Biorelease's outstanding common stock as of the Record Date for
(i) each person or entity who is known by Biorelease to own beneficially 5%
or more of Biorelease's outstanding common stock; (ii) each current executive
officer and director; and (iii) all current directors and executive officers
of Biorelease as a group. Except as otherwise indicated, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock held
by them.
63
<TABLE>
<CAPTION>
Beneficial Ownership
Beneficial Ownership of of Biorelease Common Stock
Biorelease Common Stock After the Merger (1)
---------------------------- --------------------------
Name and Address Shares Percentage Shares Percentage
- ---------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
R. Bruce Reeves (2) 245,393(3) 2.0% 9,816(3) 0.1%
Richard Schubert (2) 452,639 3.7% 18,106 0.1%
Richard Whitney (2) 318,771(4)(5) 2.9% 12,751(4)(5) 0.1%
Kevin T. McGuire (2) 205,539(6) 1.7% 8,222(6) 0.0%
All Officers and
Directors as a Group
(4 Persons) 1,222,342(7) 10.3% 48,894(7) 0.3%
Sandra J. Reeves
754 Strawhill
Manchester, NH 03104 2,338,984(8) 19.3% 93,559(8) 0.5%
Genesis Farms, Inc
507 North Belt East
Suite 240
Houston, TX 77060 1,400,000 11.5% 56,000 0.3%
(1) Assumes the issuance of all of the shares that are issuable to the PMC
shareholders in the Merger, the exercise of all outstanding options and
warrants, the issuance and conversion into shares of common stock of
all authorized shares of Series A Convertible Preferred Stock and the
issuance and exercise of all authorized Class A Common Stock Purchase
Warrants.
(2) An officer and/or director of Biorelease. The address for these persons
is c/o Biorelease Corp., 340 Granite Street, Suite 200, Manchester, NH
03102.
(3) Excludes 2,338,984 shares (56,000 post reverse shares) beneficially
owed by Dr. Reeves' wife. Dr. Reeves disclaims beneficial ownership of
the shares beneficially owned by his wife.
(4) Includes 45,000 shares (1,800 post reverse shares) issuable pursuant to
options granted to Mr. Whitney under Biorelease's Directors' Stock
Option Plan and 50,000 shares (2,000 post reverse shares) granted
pursuant to a consulting agreement with Mr. Whitney.
(5) Includes 223,771 shares (8,951 post reverse split shares owned by The
Venture Fund of Washington, a limited partnership. Mr. Whitney is a
limited partner owning approximately 19% of the limited partnership.
(6) Includes 154,539 shares (6,182 post reverse split shares) that are held
by Mr. and Mrs. McGuire jointly with rights of survivorship.
(7) Includes the shares set forth in notes (4) through (6) above.
64
(8) Includes 725,000 shares (29,000 reverse split shares) issued to RT
Robertson Consultant, Inc., trustee under the Asset Agreement of June
30, 1999. Mrs. Reeves is a stockholder in RT Robertson Consultants,
Inc. and controls ninety percent (90%) of the shares of RT Robertson
Consultants, Inc.'s common stock. Mrs. Reeves is the spouse of Dr. R.
Bruce Reeves, president of Biorelease.
</TABLE>
PMC STOCK OWNERSHIP
The following table sets forth certain information regarding beneficial
ownership of PMC's common stock as of the Record Date and the beneficial
ownership of Biorelease common stock following the Merger by: (i) each person
(or group of affiliated persons) who is known by PMC to own beneficially more
than 5% of the PMC common stock; (ii) each of PMC's directors and executive
officers and (iii) PMC's directors and executive officers as a group. The
amount of shares of Biorelease common stock shown as owned by each of those
persons assumes that each share of PMC common stock is converted into 0.15022
shares of Biorelease common stock. Except as indicated in the footnotes to
this table, the persons named in the table, based on information provided by
such persons, have sole voting and sole investment power with respect to all
shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.
65
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of Biorelease
PMC Common Stock(1) Common Stock After the Merger (2)(3)
------------------------------ ------------------------------------
Name and Address Shares Percentage Shares Percentage
- ---------------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Mark L. Nelson (4) 14,066,248 (5)(6) 15.2% 2,113,067 (5)(6) 11.3%
Gerald E. Patera (4) 721,250 0.8% 285,417 (7) 1.5%
Chandra B. Prakash (4) 800,000 (8) 0.9% 120,178 (8) 0.6%
Alan L. Smith (4) 1,200,000 (9)(10) 1.3% 180,267 (9)(10) 1.0%
Mary A. Stuart (4) 500,000 (11) 0.5% 75,111 (11) 0.4%
Otis L. Nelson, Jr. (4) 6,687,288 (6)(12) 7.2% 1,004,581 (6)(12) 5.4%
A. Richard Nelson (4) 6,657,166 (13) 7.2% 1,000,056 (13) 5.4%
Richard J. Socia (4) 3,400,550 (14)(15) 3.7% 510,839 (14)(15) 2.7%
John Loveall (4) 4,349,500 (16)(17) 4.8% 653,393 (16)(17) 3.5%
Terry Maynard (4) 1,000,000 1.1% 150,222 0.8%
Robert MacKenzie (4) 325,712 (18) 0.4% 48,929 (18) 0.3%
All Directors and Executive
Officers as a group (11 persons) 39,707,714 (19) 40.6% 6,142,061 (19) 32.9%
Agro Puro Enterprises Pte., Ltd. 10,000,000 11.0% 1,502,225 8.1%
P.T. Duta Dharma Bhakti Group
Jl. Gunung Sahari Raya No. 1
Jakarta 10720 Indonesia
Terry & Kelly Hall 6,498,975 (20) 7.1% 976,292 (20) 5.2%
301 N. Every
Mason, MI 48854
<FN>
(1) For the purposes of this table, all options to
purchase PMC's common stock for an exercise price of
less than $.20 per share are deemed to have been
exercised and the shares issuable upon exercise of
those options are deemed to be outstanding.
(2) Assumes each share of PMC common stock is converted
into 0.15022 shares of Biorelease common stock.
(3) Assumes the conversion of all of the Series A
Convertible Preferred Stock into Biorelease common stock
and the exercise of all the Warrants and all other
currently existing options and warrants.
(4) An executive officer and/or director of PMC. The
address of these persons are c/o Polar Molecular
Corporation, 4600 S. Ulster, Suite 700, Denver,
Colorado.
66
(5) Does not include 2,000,000 shares of PMC common stock
owned by Mark Nelson's sister and 3,000,000 shares of PMC
common stock owned by a trust for the benefit of his son,
as to which Mark Nelson disclaims beneficial ownership.
Otis L. Nelson, Jr., the father of Mark Nelson, also
disclaims beneficial ownership of those 5 million shares.
Those 5,000,000 PMC Shares will be converted into 751,112
shares of Biorelease common stock making the assumption
set forth in note (2) above.
(6) Includes 1,895,000 shares of PMC common stock (284,672
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Mark L. Nelson.
(7) Includes 148,225 shares of Biorelease common stock to be
received by Mr. Patera from Biorelease upon completion of
the merger and 28,844 shares of Biorelease common stock to
be issued to Bridgestone Capital Group, L.L.C. Mr. Patera
has a 17.5% interest in Bridgestone and those shares represent
17.5% of the total number of shares to be issued to Bridgestone.
(8) Includes 200,000 shares of PMC common stock (30,044
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Chandra B. Prakash.
(9) Includes 50,000 shares of PMC common stock (7,511
shares of Biorelease common stock) held by the Alan L.
Smith Trust.
(10) Includes 200,000 shares of PMC common stock (30,044
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Alan Smith.
(11) Includes 400,000 shares of PMC common stock (60,089
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Mary Stuart.
(12) Includes 1,645,000 shares of PMC common stock (247,116
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Otis L. Nelson, Jr.
(13) Includes 1,645,000 shares of PMC common stock (247,116
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by A. Richard Nelson.
(14) Does not include 201,000 shares of PMC common stock and
47,000 shares of PMC common stock issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Mr. Socia's wife, as to which
he disclaims beneficial ownership.
(15) Includes 75,000 shares of PMC common stock (11,267
shares of Biorelease common stock) owned by Halso, Inc.,
a company owned by Mr. Socia, and 352,500 shares of PMC
common stock (52,953 shares of Biorelease common stock)
issuable upon the exercise of options with an exercise
price of $.20 per PMC share or more held by Richard
Socia.
67
(16) Includes 2,425,000 shares of PMC common stock (364,290
shares of Biorelease common stock) jointly held by Mr.
Loveall and his wife.
(17) Includes 705,000 shares of PMC common stock (105,907
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by John Loveall.
(18) Includes 100,000 shares of PMC common stock (15,022
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Robert MacKenzie.
(19) Includes all the shares set forth in footnotes (5)
through (18) above.
(20) Includes 474,622 shares of PMC common stock (71,299
shares of Biorelease common stock) issuable upon the
exercise of options with an exercise price of $.20 per
PMC share or more held by Hall & Romkema, P.C. This also
includes 268,952 shares of PMC common stock (40,403
shares of Biorelease common stock) owned by Hall &
Romkema, P.C. Mr. Hall owns 65% of the shares of that
firm and these options and shares represent 65% of the
total options to purchase PMC common stock and shares of
PMC commons stock that are held by that firm.
HISTORICAL FINANCIAL INFORMATION
Selected Financial Information of Biorelease
The selected financial information presented below as of June 30, 1999 and
1998 and for the years then ended is derived from the financial statements of
Biorelease audited by Ferrari & Associates P.C. The selected financial
information presented below as of September 30, 1999 and 1998 and for the
three-month periods then ended is unaudited, but, in the opinion of
management, includes all adjustments (consisting of only normally recurring
accruals) necessary to fairly present such information. The results of the
three-months ended September 30, 1999 are not necessarily indicative of
results which may be expected for the full year. The financial data should be
read in conjunction with those financial statements and the footnotes thereto
appearing elsewhere in this document and with "Biorelease Management's
Discussion and Analysis of Financial Condition and Results of Operations."
68
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 3 Months Ended September 30
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Income:
Total Revenues $ 11,630 $ 62,825 $ -- $ 3,130
Gross Profit 8,812 60,784 -- 2,953
Operating Expenses 22,794 63,117 5,637 13,533
Other (Income) Expenses (326,731) 9,935 -- 1,574
Net Income (Loss) 312,749 (12,268) (5,637) (12,154)
(Unaudited)
June 30 September 30
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 10,778 $(253,664) $ 6,471 $(261,086)
Total Assets 33,653 60,674 23,731 56,836
Total Liabilities 25,020 401,307 19,768 409,623
Stockholders' Equity (Deficit) 8,633 (340,633) 3,963 (352,787)
</TABLE>
Biorelease Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements relating to future
events or the future financial performance of Biorelease, which involve risks
and uncertainties. Biorelease's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors," "Business" and
elsewhere in this prospectus.
Results of Operations - General
In April, 1994, following a failed financing and delisting by NASDAQ for
falling below required asset levels, Biorelease experienced a severe cash
flow shortage and had to severely curtail its research funding. In May 1994,
Biorelease terminated substantially all remaining personnel except for one
remaining research scientist and Dr. Reeves. Late in June 1995 Biorelease
moved to facilities in Bedford, NH. In October 1997 Biorelease moved to its
current location in Manchester, NH. As a part of this consolidation,
Biorelease Technologies, Inc. ("BTI" or the "Subsidiary") sold all
non-essential equipment, destroyed all non-essential inventory and settled
its outstanding lease obligations with both its equipment and facilities
lessors. The Subsidiary also reached settlement with a number of creditors by
issuing stock in Biorelease in exchange for creditor releases (see Financial
Statements at Note 6). Currently, the Subsidiary continues to maintain
inventory of Erythrogen(TM), its cell culture additive product, in order to
provide for supply of the product to existing and new customers. For the past
several years, Biorelease and the Subsidiary have focused primarily on
ErythrogenTM sales activities. All other operating activities have now
ceased. Other than possible licensing opportunities, therapeutic products
which could have been derived from the Subsidiary's technologies are years
away from market introduction and would require significant additional
research and development, including
69
extensive preclinical and clinical testing and regulatory approval and
additional resources the Subsidiary presently does not possess. See "Item 1.
Business."
Sales from ErythrogenTM for the year ended June 30, 1999, and 1998, were
$11,630 and $8,717, respectively. During year end June 30, 1995 the
Subsidiary ceased promoting direct sales to research and laboratory markets
because of the extremely high promotion costs necessary to access these
markets. Instead, the Subsidiary has focused on supplying a single industrial
client, which incorporates ErythrogenTM in a proprietary media.
In 1995, the Subsidiary obtained its first significant sponsored research
revenues. This revenue amounted to $0 in 1999 and $47,154 in 1998.
Chondroitin sulfate sales were $0 in 1999 and $6,404 in 1998. Total revenues
were $11,630 in 1999 compared to $62,825 for the year ended June 30, 1998.
Because of the closing of the Subsidiary's laboratory facilities, it is
unlikely sponsored research will continue until the Subsidiary re-establishes
new laboratory facilities, if ever. Following its restructuring and
consolidation, the Subsidiary has and will continue to focus on industrial
ErythrogenTM sales and continue to pursue licensing and/or sale of its
chondroitin sulfate therapeutic sustained release drug technology. Biorelease
intends to distribute to its shareholders all of the capital stock of the
Subsidiary so that, upon the completion of the Merger, Biorelease will no
longer have any interest in the business of the Subsidiary.
Year Ended June 30, 1999 Compared to the Year Ended June 30, 1998
For the year ended June 30, 1999 Biorelease had revenues of $11,630, cost of
revenues of $2,818, research and development costs of $0, purchased
technology costs of $0, general and administrative costs of $22,794, interest
expense of $5,183, Other income of $9,869, a loss on the sale of assets of
$1, income recognized on indemnified liabilities of $242,276, Income
recognized on settlements of $79,770 and no income taxes as compared with the
year ended June 30, 1998 in which Biorelease had revenues of $62,825, cost of
revenues of $2,041, research and development costs of $0, purchased
technology costs of $0, general and administrative costs of $63,117, interest
expense of $8,435 and $1,500 in offering costs, and no income taxes. This
resulted in a net income of $312,749 for the year ended June 30, 1999 as
compared with the year ended June 30, 1998, in which Biorelease, including
the Subsidiary, had a net loss of $12,268. The income for year ended June 30,
1999 was primarily as a result of income recognized on indemnified
liabilities $242,276 and income recognized on settlements $79,770. Without
this income Biorelease would have a net loss of $9,297 as compared to
the previous fiscal year's loss of $12,228. Loss from operations in fiscal
year ended June 30, 1999 was $ 13,982 as compared with fiscal 1998 in which
the loss from operations was $2,333. The change in loss from operations
resulted from the discontinued Sponsored research revenues from Baxter
Healthcare ("Baxter") in December 1997 offset by lower general and
administrative expenses.
Other non-operational income in fiscal year ended June 30, 1999 in the
aggregate of $326,731 as compared to an expense of $9,935 in fiscal 1998 was
as a result of settlement of liabilities necessary to comply with the
proposed Merger with PMC.
70
Three Months Ended September 30, 1999 Compared to the Three Months
Ended September 30, 1998
For the three months ended September 30, 1999, Biorelease had zero revenues
compared with $3,130 for the same period of 1998, reflecting the minimization
of the operations of the Company's Subsidiary. General and Administrative
Expenses were $5,637 for the 1999 period compared to $13,533 for the same
period in 1998. Other Expenses were zero for the 1999 period compared to
$1,574 for the same three month period of 1998. As a result of the changes in
revenues and expenses, Biorelease experienced a net loss of $5,637 for the
three months ending September 30, 1999 compared with the net loss of $12,154
for the three months ending September 30, 1998.
Liquidity and Capital Resources
At September 30, 1999, Biorelease had working capital of $6,471 compared to a
negative working capital position of ($261,086) at September 30, 1998. The
improvement in working capital in the amount of $267,557 was primarily
attributable to income recorded in the fiscal year period ended June 30, 1999
that resulted from indemnified liabilities and settlements against current
liabilities (see discussion above for Year Ended June 30, 1999). Net income
that resulted from indemnified liabilities and settlements against both
current and long term liabilities combined with $36,517 in equity raised from
option exercises are primarily responsible for the reduction in total
liabilities to $19,768 at September 30, 1999 compared with $452,872 at
September 30, 1998 and the improvement in Stockholder's Equity to a positive
$3,963 at September 30, 1999 compared to a deficit of ($352,787) at September
30, 1998.
The drastic restructuring of its operations during the past four years has
allowed Biorelease to operate at significantly lower expense levels than
those of the previous years. Revenues from ErythrogenTM sales, have exceeded
direct costs for the last four fiscal years, but they are not sufficient, to
carry all other expenses not relating to ErythrogenTM, especially considering
the conversion by Baxter from an exclusive to a non-exclusive license
arrangement and loss of resulting exclusivity payments.
Effect of Inflation
Management believes that inflation has not had a material effect on its
operations for the periods presented.
Biorelease's Changes in and Disagreements With Accountants on
Accounting and Financial Disclosures.
Biorelease's directors appointed Ferrari & Associates, P.C. to perform the
audit for the most recently completed fiscal period ending June 30, 1999,
terminating the previous auditors, Berry Dunn McNeil & Parker.
In connection with the audits of the financial statements of Biorelease, for
the fiscal years ended June 30, 1997 and 1998 and during the period
commencing July 1, 1996 through the date of this report, there were no
disagreements with Berry Dunn McNeil & Parker on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Berry
Dunn McNeil & Parker, would have caused them to make reference to the subject
matter of the disagreement in their report.
Except for an explanatory paragraph concerning Biorelease's ability to
continue as a going concern, none of Berry Dunn McNeil & Parker's reports on
Biorelease's financial statements contained an adverse opinion or disclaimer
of opinion, nor was it qualified as to uncertainty, audit scope or accounting
principles.
Selected Financial Information of PMC
The selected financial information presented below as of March 31, 1999 and
1998 and for the years then ended is derived from the financial statements of
PMC audited by Hein + Associates
71
LLP. The selected financial information presented below as of September 30,
1999 and 1998 and for the six-month periods then ended is unaudited, but, in
the opinion of management, includes all adjustments (consisting of only
normally recurring accruals) necessary to fairly present such information.
The results of the six-months ended September 30, 1999 are not necessarily
indicative of results which may be expected for the full year. The financial
data should be read in conjunction with those financial statements and the
footnotes thereto appearing elsewhere in this document and with "PMC's
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 6 Months Ended September 30
--------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Statements of Income:
Sales $ 182,130 $ 306,999 $ 56,367 $ 70,085
Gross Profit 120,779 243,937 33,237 32,973
Selling, General and
Administrative Expenses 1,114,742 1,272,651 585,280 609,432
Non-Recurring, Non-Cash Exp 3,419,205 66,825 1,189,225 --
Other (Income) Expenses 203,496 217,688 13,207 34,439
Net Income (Loss) (4,616,664) (1,313,227) (1,754,475) (610,898)
March 31 September 30
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital (Deficit) (2,099,116) (1,134,840) (1,809,665) (2,157,910)
Total Assets 291,703 358,804 354,212 344,642
Total Liabilities 2,224,165 1,993,332 2,022,720 2,269,418
Stockholders' Equity (Deficit) (1,932,462) (1,634,528) (1,668,508) (1,924,776)
</TABLE>
PMC Management's Discussion and Analysis of Financial Condition and Results
of Operations
The discussion in this section contains forward-looking statements that
involve risks and uncertainties regarding PMC's revenues and associated costs
and expenses. PMC's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section entitled
"Risk Factors--Risks Relating to PMC," as well as those risks discussed in
this section and elsewhere in this Proxy Statement/Prospectus.
Liquidity and Capital Resources
On March 31, 1999, PMC had a working capital deficit (current assets minus
current liabilities) of $2,099,116. As of September 30, 1999, that working
capital deficit had decreased to $1,809,665. That improvement of $289,000 was
primarily the result of the sale of shares of common stock to private
investors for net proceeds of approximately $829,000 less cash operating
expenses paid in the period. PMC is seeking to raise additional funds from
the private placement of convertible preferred stock to eliminate that
working capital deficit and provide it with funds to expand its business
operation and carry
72
out its business plan. However, there can be no assurance as to the amount of
funds that it will raise in that offering or the timing of the receipt of any
funds that may be raised.
Results of Operations - Years ended March 31, 1998 and 1999
Net Sales for the year ending March 31, 1999 were $182,130, a decrease of
$124,869 (40.7%) from the sales of $306,999 for the year ended March 31,
1998. This decrease in net sales was primarily the result of PMC redirecting
its efforts towards seeking to enter into agreements with major oil companies
rather than the limited number of distributors that it had previously been
selling to. The sales in fiscal 1999 also decreased because of a decrease in
the licensing fee charged to one customer.
Although Net Sales decreased by 40.67% from 1998 to 1999, the Cost of Sales
decreased by only 2.7% from $63,063 in 1998 to $61,352 for 1999. The fact
that the Cost of Sales did not decrease in proportion to the Net Sales is due
to the fact that those numbers were low and any comparison is therefore less
meaningful and also because a portion of the decrease in Net Sales resulted
from a decrease in licensing fees, which would not have a corresponding
decrease in Cost of Sales. The cost of producing PMC's products did not
materially increase from 1998 to 1999. The decrease in Net Sales without a
corresponding decrease in Cost of Sales resulted in the Gross Margin
decreasing from $243,937 in 1998 to $120,779 in 1999, a decrease of $123,158
(50.5%).
PMC's operating expenses increased by $3,194,471 (238.5%) from $1,339,476 in
1998 to $4,533,947 in 1999. The biggest cause of that increase was the
non-cash expenses that were incurred with respect to shares of common stock
and stock options that were issued in 1999 for payment of patent royalties
($2,053,995) and to employees and consultants ($1,365,210). In 1998, PMC only
incurred $66,825 of non-cash expenses relating to the issuance of stock and
stock options. PMC accounts for stock-based compensation issued to employees
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation costs for stock options granted to
employees is measured as the excess, if any, of the market price of PMC's
common stock at the measurement date (generally the date of grant) over the
amount an employee must paid to acquire the stock. PMC accounts for options,
warrants and similar instruments which are granted to non-employees for goods
and services at fair value on the grant date, as required by SFAS No. 123,
Accounting for Stock-Based Compensation. Fair value is generally determined
under an option pricing model using a criteria set forth under SFAS No. 123.
After excluding the non-cash expenses that were incurred with respect to the
issuance of stock and stock options ($66,825 in 1998 and $3,419,205 in 1999)
and depreciation and amortization ($43,157 in 1998 and $54,292 in 1999), PMC
had total cash operating expenses of $1,060,450 in 1999, a decrease of
$169,044 (14%) from the $1,229,494 of cash operating expenses in 1998.
Among the significant changes in PMC's cash operating expenses from 1998 to
1999 were the following:
Bad Debt Expense decreased by $104,460 from $108,482 in 1998 to
$4,022 in 1999 primarily due to a write off in 1998 that related
to an uncollectible loan to a foreign Distributor.
73
Marketing expenses decreased by $30,490 from $35,955 (2.3% of
operating expenses) in 1998 to $5,465 (0.1% of operating expenses)
in 1999. This reflects PMC's efforts to redirect its marketing
efforts towards major oil companies. Travel expenses experienced a
similar decline of 18.5% from $155,538 in 1998 to $126,758 in
1999.
As a result of foregoing, PMC incurred a loss from operations of $4,413,168
in 1999, an increase of $3,317,629 from the $1,095,539 loss from operations
that had incurred in 1998. After taking account of PMC's other income and
expense items, its net loss for 1999 was $4,616,664, an increase of
$3,303,440 from the net loss of $1,313,227 for 1998. However, in analyzing
that net loss for 1999, it should be remembered that $3,419,205 of that
amount was the result of the non cash expenses related to the grant of stock
and options for various purposes in 1999.
Results of Operations - Six Months Ended September 30, 1998 and 1999.
Net sales for the six months ended September 30, 1999 were $56,367, a
decrease of $13,718 (19.6%) from the $70,085 of sales for the six months
ended September 30, 1998. This decrease in net sales was primarily the result
of PMC redirecting its efforts toward seeking to enter into agreements with
major oil companies rather than the limited number of distributors that it
had previously been selling to. The cost of sales decreased by $13,981
(37.7%) from $37,111 in 1998 to $23,130 in 1999. These factors resulted in
the gross margin increasing from $32,973 in 1998 to $33,237 in 1999, an
increase of $264 (0.8%) from the six months ended September 30, 1998 to the
six months ended September 30, 1999.
PMC's operating expenses increased by $1,165,073 (191.2%) to $1,774,505 for
the six months ending September 30, 1999 compared with $609,432 for the six
months ending September 30, 1998. The major component of that increase was
the non-cash expense incurred in the 1999 period for the issuance of common
stock and options as payment to employees and consultants in the amount of
$1,189,225 as compared with zero such expense for the 1998 period. PMC
accounts for stock based compensation issued to employees using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation costs for stock options granted to employees is
measured as the excess, if any, of the market price of PMC's common stock at
the measurement date (generally the date of grant) over the amount an
employee must pay to acquire the stock. PMC accounts for options,
warrants and similar instruments which are granted to non-employees for good
and services at fair value on the grant date, as required by SFAS No. 123,
Accounting for Stock-Based Compensation. Fair value is generally determined
under an option pricing model using a criteria set forth under SFAS No. 123.
After excluding the non-cash expenses incurred on the issuance of stock and
options, PMC's remaining operating expenses totaled $585,280 for the six
months ended September 30, 1999, as compared with $609,432 for the six months
ended September 30, 1998. Significant changes in operating expenses for the
six months of 1999 as compared to the same period of 1998 were experienced in
increased Accounting Fees of $19,034, an increase in the combined Salaries
and Wages plus Consulting Fees accounts of $30,056, an increase in Payroll
Taxes of $5,663, a reduction in Legal Fees of ($47,318), and a reduction in
the Travel and Related Expenses of ($39,507). Other Expenses amounted to
$13,207 for the six months ended September 30, 1999, a reduction of $21,232
from the same period in 1998 and resulted almost entirely from a $20,750
reduction in Interest Expense.
As a result of the foregoing, PMC incurred a net loss of $1,754,475 for the
six months ended September 30, 1999, an increase of $1,143,577 compared to
the net loss of $610,898 for the same six month period of 1998.
Year 2000
PMC is aware that many computers, software and embedded processors will
experience "Year 2000 compliance" problems during the transition from 1999 to
2000 and as a result of 2000
74
being a leap year. Those problems arise when time, as expressed by a system
or software, does not move forward successfully in line with true time. The
most commonly known manifestation of this occurs in systems that use two
rather than four digits to store a year so that the year 1999 would be stored
as "99" and the year 2000 would be stored as "00". As a result, when moving
from 1999 to 2000, that system could think that the date was 1900 or else
fail altogether. Additionally, some systems will fail to recognize 2000 as a
leap year, and thereby omit February 29, 2000 from their calendars.
PMC utilizes several stand-alone PC's in its operations. Because those
computers are relatively new and the software that is utilized is also
relatively new and widely sold to the public, PMC does not anticipate any
material Year 2000 compliance issues. PMC has not expended any funds to make
its hardware and software Year 2000 compliant other than updating its
software to current retail versions. The possibility exists however, that
certain of its computers or software may not be fully Year 2000 compliant or
that unforeseen circumstances may arise that interrupt certain areas of its
business or operations. In the case of any such occurrence, PMC believes that
it could implement a solution within a matter of days by replacing the
affected computer and/or software and no material interruption of PMC's
business operations will occur.
PMC has not sought certification of Year 2000 compliance from its significant
third-party vendors. The only third-party vendor that would cause a material
adverse impact on PMC's operations if it was not Year 2000 compliant would be
Grow Automotive, the supplier of PMC's products. However, because that
supplier is a subsidiary of PPG Industries, a multi-billion dollar,
multi-national firm, PMC is confident that Grow Automotive has conducted a
Year 2000 compliance program. PMC has not generated and does not intend to
generate any disaster contingency plans regarding the Year 2000 compliance
issue.
PRO FORMA COMBINED FINANCIAL INFORMATION
For accounting purposes, Biorelease's acquisition of PMC will be accounted
for as a recapitalization of PMC with no goodwill or other intangibles
recorded, as Biorelease had minimal operations prior to the acquisition and
the shareholders of PMC will have effective control of the combined entity.
The accompanying unaudited pro forma balance sheet combines the September
30, 1999 balance sheet of PMC and Biorelease as if the transaction had
occurred on that date.
The accompanying unaudited pro forma statements of operations combine the
operations of PMC and Biorelease for the years ended March 31, 1999 and
June 30, 1999 respectively, and the six months ended September 30, 1999 as if
the transaction had occurred as of the beginning of the periods presented.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the transaction been consummated
at the beginning of the periods indicated.
The unaudited pro forma combined financial statements should be read in
conjunction with the historical financial statements and notes thereto,
included elsewhere in this Prospectus.
75
<TABLE>
<CAPTION>
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
Subsidiary Other Pro Forma
PMC Biorelease Adjustment Adjustments Combined
--- ---------- ---------- ----------- ---------
(a)
ASSETS
------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,604 $ 2,673 $ -- $ -- $ 11,277
Accounts receivable 10,481 -- -- -- 10,481
Other receivables 70,447 -- -- -- 70,447
Inventory 9,074 16,366 (16,366) -- 9,074
Prepaid expenses 21,104 2,957 -- -- 24,061
------------ ----------- ----------- ------------ -------------
Total current assets 119,710 21,996 (16,366) -- 125,340
PROPERTY, PLANT AND EQUIPMENT, net 15,593 4,692 (4,173) -- 16,112
PATENT AND TRADEMARK, net 218,909 -- -- -- 218,909
------------ ----------- ----------- ------------
TOTAL ASSETS $ 354,212 $ 26,688 $ (20,539) $ -- 360,361
============ =========== =========== ============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
-----------------------------
CURRENT LIABILITIES:
Current portion of long-term debt, and notes $ 402,766 $ -- $ -- $ -- $ 402,766
with no stated maturity
Accounts payable 321,417 5,149 -- -- 321,417
Deferred revenue 743,416 -- -- -- 743,416
Accrued payroll and payroll taxes 434,811 -- -- -- 434,811
Other accrued liabilities 26,965 7,419 -- 40,000(b) 26,965
------------ ----------- ----------- ------------ -------------
Total current liabilities 1,929,375 12,568 -- 40,000 1,981,943
NOTES PAYABLE, net of current portion 93,345 -- -- -- 93,345
OTHER LIABILITIES -- 7,200 -- -- 7,200
STOCKHOLDERS' DEFICIT:
Common stock 74,292 121,242 -- (46,684)(c) 148,850
Additional paid-in capital 10,039,959 9,114,729 (5,810,287) (3,392,619)(c) 9,951,782
Accumulated deficit (11,782,759) (9,220,977) 5,789,748 3,391,229(b)(c) (11,822,759)
Stock subscriptions receivable -- (8,074) -- 8,074(c) --
------------ ----------- ----------- ------------ -------------
Total stockholders' equity
(deficit) (1,668,508) 6,920 (20,539) (40,000)(b) (1,722,127)
------------ ----------- ----------- ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 354,212 $ 26,688 $ (20,539) $ -- $ 360,361
============ =========== =========== ============ =============
</TABLE>
76
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
Subsidiary Other Pro Forma
PMC Biorelease Adjustments Adjustments Combined
--- ---------- ----------- ----------- ---------
(a)
<S> <C> <C> <C> <C> <C>
REVENUES $ 56,367 $ 4,674 $ (4,150) $ -- $ 56,891
Cost of revenues 23,130 1,287 (1,287) -- 23,130
------------ ---------- ----------- ----------- -----------
GROSS PROFIT 33,237 3,387 (2,863) -- 33,761
OTHER OPERATING EXPENSES:
Officers' salaries 140,000 -- -- -- 140,000
Travel and entertainment expenses 44,439 -- -- -- 44,439
Non-cash operating expenses:
Expense for stock and options
issued for royalties -- -- -- -- --
Expense for stock options granted
to employees and consultants 1,189,225 -- -- -- 1,189,225
Amortization and depreciation 25,800 -- -- -- 25,800
General and administrative 375,041 (6,853) (8,252) 40,000(b) 399,936
------------ ---------- ----------- ---------- -----------
Total other operating expenses 1,774,505 (6,853) (8,252) 40,000(b) 1,799,400
------------ ---------- ----------- ---------- -----------
LOSS FROM OPERATIONS (1,741,268) 10,240 5,389 (40,000) (1,765,639)
OTHER INCOME (EXPENSE):
Interest expense (14,156) (1) -- -- (14,157)
Other income 949 10,368 (394) -- 10,923
Gain on Debt forgiveness -- 321,892 (165,860) (166,565)(d) (10,533)
------------ ---------- ----------- ----------- -----------
Total other income (expense) (13,207) 332,259 (166,254) (166,565) (13,767)
------------ ---------- ----------- ----------- -----------
NET INCOME (LOSS) $ (1,754,475) $ 342,499 $ (160,865) $ (206,565) $(1,779,406)
============ ========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ (.12)
===========
SHARES OUTSTANDING 14,884,970
===========
</TABLE>
77
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
PMC Biorelease
For the Year Ended For the Year Ended Subsidiary Other Pro Forma
March 31, 1999 June 30, 1999 Adjustments Adjustments Combined
------------------ ----------------- ----------- ----------- --------
(a)
<S> <C> <C> <C> <C> <C>
REVENUES $ 182,130 $ 11,630 $ (11,630) $ -- $ 182,130
Cost of revenues 61,351 2,818 (2,818) -- 61,351
------------ --------- ---------- ---------- -----------
GROSS PROFIT 120,779 8,812 (8,812) -- 120,779
OTHER OPERATING EXPENSES:
Officers' salaries 215,861 -- -- -- 215,861
Travel and entertainment expenses 126,758 -- -- -- 126,758
Non-cash operating expenses:
Expense for stock and options
issued for royalties 2,053,995 -- -- -- 2,053,995
Expense for stock options granted
to employees and consultants 1,365,210 -- -- -- 1,365,210
Amortization and depreciation 54,292 -- -- -- 54,292
General and administrative 717,831 22,794 (87,715) 40,000(b) 692,910
------------ --------- ---------- ---------- -----------
Total other operating expenses 4,533,947 22,794 (87,715) 40,000 4,509,026
------------ --------- ---------- ---------- -----------
LOSS FROM OPERATIONS (4,413,168) (13,982) 78,903 (40,000)(a) (4,388,247)
OTHER INCOME (EXPENSE):
Interest expense (207,133) (5,183) 4,173 -- (208,143)
Other income 3,637 9,868 (394) -- 13,111
Gain on settlement of liabilities -- 322,046 (166,014) (156,032)(d) --
------------ --------- ---------- ---------- -----------
Total other income (expense) (203,496) 326,731 (162,235) (156,032) (195,032)
------------ --------- ---------- ---------- -----------
NET INCOME (LOSS) $ (4,616,664) $ 312,749 $ (83,332) $ (196,032) $(4,583,279)
============ ========= ========== ========== ===========
EARNINGS (LOSS) PER SHARE $ (.31)
===========
SHARES OUTSTANDING 14,884,970
===========
</TABLE>
78
PRO FORMA ADJUSTMENTS
(a) To remove the accounts of Biorelease Technologies, Inc., which
is included in the consolidated financial statements of
Biorelease and is to be disposed of prior to the merger.
(b) To accrue estimated costs of the merger.
(c) To reflect the exchange of 13,624,000 post reverse split shares
of Biorelease common stock for 100% of the outstanding common
shares of PMC, and to reflect a 1 for 25 reverse stock split for
Biorelease shares.
(d) To remove nonrecurring gains of Biorelease.
BUSINESS OF BIORELEASE
General
Biorelease is currently engaged, on a limited basis through its subsidiary,
Biorelease Technologies, Inc. ("BTI"), in the development and licensing of
biotechnology-related products. The only business carried out by Biorelease
is the limited business conducted by BTI. Prior to the effective date of the
Merger, Biorelease will distribute to its shareholders all of its capital
stock of BTI. As a result, Biorelease will not have any operating business as
of the effective date of the Merger.
Because Biorelease will not have any operating business as of the effective
date of the Merger, a description of the current business of Biorelease is
not contained herein. BTI has filed a registration statement with the
Securities and Exchange Commission with respect to its plan to distribute the
shares of its operating subsidiary, BTI, to the persons who were shareholders
of Biorelease prior to the Merger. That registration statement contains
information regarding the business of BTI. The prospectus contained in that
Registration Statement will be distributed to all of the Biorelease
shareholders before the Biorelease Special Meeting. Any shareholder of PMC
who desires a copy of that prospectus with information about the business of
BTI may obtain one by contacting Biorelease or by viewing it on the
Commission's website at www.sec.gov.
79
BUSINESS OF PMC
General
Polar Molecular Corporation ("PMC"), is a Utah corporation based in Denver,
Colorado, that develops and markets fuel additives. PMC's primary product,
DurAlt(R) FC, is a fuel additive that has been shown to be beneficial to the
environment in tests conducted by independent laboratories, major oil
companies and major engine manufacturers.
PMC maintains its principal office at 4600 S. Ulster, Suite 700, Denver,
Colorado, telephone (303) 804-3804.
Background
PMC's predecessor was founded in 1984 by Otis L. Jr., Mark L. and A. Richard
Nelson in Saginaw, Michigan. In February 1986, PMC went public through a
merger with a public company and, in August 1987, sold shares of its common
stock in an underwritten public offering. In June 1992, PMC's management lost
a proxy contest and were replaced by a new board of directors. That new
management group moved PMC's headquarters from Michigan to Massachusetts and,
in February 1993, filed a voluntary bankruptcy proceeding. Mark Nelson and
other shareholders formed a committee they called The Committee to Save Polar
(the "Committee") which opposed the efforts of those who sought to acquire
PMC's assets at an unreasonably low price. When the bankruptcy was completed,
the Court cancelled all of PMC's then existing shares of common stock,
terminated most of its liabilities and transferred ownership of PMC to the
members of the Committee. Those persons then assumed control of PMC, elected
new directors and issued new shares of common stock.
Since its formation, utilizing an investment of approximately $30 million,
PMC has developed unique fuel additive technology which is protected by 40
U.S. and international patents and trademarks. Performance claims have been
verified by major independent research laboratories, a major oil company,
major engine manufacturers and leading environmental research institutes.
PMC's DurAlt(R) FC technology has been successfully tested in both the bulk
treatment and consumer markets.
PMC's principal product, DurAlt(R) FC, is an environmentally superior fuel
additive that helps meet corporate and governmental goals for reducing
greenhouse gases, reduces diesel particulate emissions, and can be used to
facilitate the phase out of tetraethyl lead from gasoline. Demand for a bulk
treatment fuel additive like DurAlt(R) FC is being driven by the worldwide
movement toward improved air quality.
DurAlt(R) FC is EPA allowed for bulk treatment of gasoline while performance
claims and benign health effects have been validated by two widely respected
U.S. environmental research organizations, Rocky Mountain Institute,
Snowmass, CO, and Health Effects Institute, Boston, MA; a major oil company,
leading engine manufacturers, and government and independent research
laboratories. In addition, the Society of Automotive Engineers, Inc. ("SAE")
has published two technical papers on PMC's DurAlt(R) FC technology.
80
Industry and Product Background
The demand for DurAlt(R) FC technology is driven by multiple factors. These
include new environmental regulations which seek to reduce the use of lead
and other octane boosters; stringent new fuel specification requirements of
automakers who must meet rapidly evolving environmental regulations and
challenges; and an agenda originating from environmental organizations,
governmental agencies in the U.S. and other countries, and international
organizations, such as the United Nations and the World Bank.
Octane Numbers and Octane Requirement Increase
In order to understand the benefits of DurAlt(R) FC, you need to understand
the basic concept of "octane numbers" in gasoline. For use in
high-compression engines such as those in automobiles, it is desirable to
produce gasoline that will burn evenly and completely in order to prevent
knocking (the sound and damage caused by premature ignition of a part of the
fuel and air in the combustion chamber of an internal-combustion engine). The
antiknock characteristics of a gasoline are directly related to its
efficiency and are indicated by its octane number. The higher this number,
the less likely a fuel is to cause knocking. In order to increase the octane
number of fuel and thereby reduce engine knocking, oil refiners add several
additives to the gasoline. One "octane boosting" additive that has been
heavily used in the past is Tetraethyl Lead ("TEL"). As will be discussed
later in this document, many of the "octane booster" additives have adverse
environmental and health effects.
Another concept that is important in understanding the benefits of DurAlt is
"Octane Requirement Increase" which PMC refers to herein as "ORI". When a new
gasoline engine is first started up, carbon from unburned fuel begins to
build up in the combustion chamber and form "combustion chamber deposits"
which PMC refers to herein as "CCD's". Over the first 10,000 miles of a new
car's life, the accumulation of these CCD's drives up the octane demand of an
engine 5 to 10 octane numbers so that higher octane fuel is required to get
the same performance that the engine had when it was new. Almost all new
vehicles can use about 80-octane (R+M)/2 fuel with optimum performance.
However, after about 15,000 miles the vehicles require about 87-octane fuel
(regular grade in the US) for good performance. The octane requirement
increase may increase further depending on many factors, including engine
design and driver habits. The use of leaded fuel increases the octane
requirement of engines to a greater extent than unleaded fuel. Because of
ORI, car manufacturers are forced to "de-tune" gasoline production engines at
the factory, sacrificing fuel economy in order to prevent engine knock and
resultant damage caused by the buildup of CCDs and ORI. DurAlt(R) FC reduces
CCD's and reduces ORI by 55 to 80 percent in gasoline engines. If DurAlt(R)
FC technology or its equivalent was used in all gasoline automotive fuels in
the U.S., auto manufacturers could readjust engines to far more efficient
engine settings at the factory, thus reducing the fuel economy penalty
related to ORI. This, of course, would require the cooperation of all auto
manufacturers and oil refiners in the U.S. market.
Phase Out of Lead as a Fuel Additive
The EPA, United Nations, and World Health Organization have jointly
identified that the removal of tetraethyl lead from gasoline is the number
one health priority and adopted goals of
81
elimination of lead by 2002. As previously described, TEL has been used as an
"octane booster" to increase the octane level of gasoline. Although DurAlt(R)
technology does not increase the octane rating of fuel, by cleaning the
combustion chamber, it greatly decreases the octane demand of the engine,
thus allowing optimal performance of conventional vehicles on reduced octane
fuel. The use of additives such as DurAlt(R) FC that reduce the octane
requirement of engines will allow refineries to also reduce the octane of the
fuel by the same amount, thus reducing the amount of lead or other octane
boosters that are added to the fuel. The result is satisfactory vehicle
operation without using lead, importing high-octane fuel components, or
modifying the refinery.
Additives that are intended to replace tetraethyl lead (TEL) in gasoline are
octane boosters and some contain heavy metals which, according to auto
manufacturers, can contribute to deterioration of emission control systems
and may be deleterious to human health. DurAlt(R) FC contains no heavy metals
and has been designated "substantially similar" to gasoline by the U.S.
Environmental Protection Agency.
One "octane booster" additive that is used in place of lead is MTBE. Since
MTBE is considered a possible human carcinogen by the U.S. Environmental
Protection Agency (US EPA) and has a disagreeable taste and odor at extremely
low concentrations, studies by many Federal, State and Local agencies are
taking place to fully grasp the ecological and health issues circling the
impact of inadvertent releases of MTBE into drinking water supplies. As a
result of these ongoing studies and the potential cleanup costs involved,
there is some interest in the industry to find an adequate substitute for
MTBE's octane increasing properties.
In addition to acting as an octane booster, lead also serves as a lubricant.
Using unleaded gasoline in older engines that were designed for leaded
gasoline can cause valve seat problems unless another additive is used to
replace the lubrication that was provided by lead. There are many other "lead
substitute" additives that are intended to protect against valve seat
problems in older engines. Many of these products have been shown to increase
CCDs and cause other problems. DurAlt(R) FC both controls valve seat
recession and reduces CCDs.
In a 1995 study commissioned by the U.S. EPA for the Russian oil industry,
costs for alternative means to phase lead out of gasoline were compared.
DurAlt(R) FC was shown to be the most cost effective means of achieving lead
phase down in motor gasolines.
Other Regulatory and Market Trends
Since January 1995, all gasoline in the U.S. has contained some type of
detergent additive as mandated by the EPA. Unfortunately, these additives
have also been shown to increase CCDs which have resulted in customer and
auto manufacturer complaints. Again, DurAlt(R) FC reduces CCDs and has
demonstrated compatibility with detergent additives. One U.S. automaker has
stated that deposit free engines would emit 10 to 15 percent fewer
hydrocarbons and would have 5 percent better fuel economy.
In June 1998, the world's auto manufacturers sent a unified signal to
refiners indicating fuel qualities they require in order to meet the
environmental expectations of the international community. The focus is on
reducing sulfur in fuel, minimizing the use of oxygenates such as MTBE in
gasoline, and eliminating the use of additives which contain heavy metals or
contribute
82
to increased CCD formation. In view of the automakers' fuel specifications,
PMC believes DurAlt(R) may become a fuel additive technology of choice in
both gasoline and diesel fuel.
In addition to minimizing sulfur in both gasoline and diesel fuel, the future
regulatory requirements would focus on reducing combustion chamber deposits
in gasoline engines, reducing particulate emissions from diesel engines, and
lowering greenhouse gas emissions. DurAlt(R) FC can help automakers and
refiners achieve these new, more stringent emissions standards.
Products
DurAlt(R) Fuel Conditioner
DurAlt(R) FC is PMC's main flagship product. DurAlt(R) FC is an effective
combustion modifying agent in both gasoline and diesel engines. The
accelerated combustion reduces combustion chamber deposits, smoke,
particulate, and other emissions while increasing engine efficiency, power
and fuel economy. DurAlt(R) FC also enhances fuel stability and fuel octane
quality in diesel fuel.
PMC believes that benefits of using DurAlt(R) include a reduction or
elimination of combustion knock and detonation equivalent to that obtained by
a fuel octane increase; more complete combustion of fuel resulting in a
reduction in the amount of fuel required and a reduction of hydrocarbon and
carbon monoxide emissions; a reduction in valve and ring wear; increased
cleanliness of combustion chambers, ring grooves, pistons, carburetors and
gasoline and diesel fuel injectors; reduction of condensation; use as a
de-icer and elimination of the cost of a separate de-icer and prevent of rust
and corrosion.
In May, 1986, the EPA determined that DurAlt(R) FC meets the EPA's
"substantially similar" designation so that DurAlt(R) is allowable for bulk
treatment of unleaded fuel by refiners, fuel wholesalers, bulk stores, and
users of unleaded fuel.
DurAlt(R) technology offers several areas of improvement to diesel fuel,
which allows the product to be marketed for many purposes. The specific
benefits derived from use of DurAlt(R) in diesel fuel include:
o Improved cetane - Cetane is a measure of the affinity of diesel
fuel to ignite easily and is perhaps the most important
characteristic of diesel fuel. Increased cetane reduces smoke,
particulate and unburned fuel emissions, and improves performance
and economy. New specifications for premium diesel fuels will
certainly require increased cetane. Conventional cetane enhancers
are nitrate compounds, can be explosive by nature, are hazardous
when breathed by humans, and have the potential to cause increased
NOx emissions in the exhaust. DurAlt(R) FC increases cetane and
has none of the hazards associated with nitrate compounds.
o Improved lubrication - New fuel specifications require reduced
sulfur as a means to reduce sulfur oxide (SOx) emissions.
Reduction in sulfur reduces the natural lubricity of
83
diesel fuel as well as the potential for increased wear on fuel
injection pumps. DurAlt(R) FC improves the lubricity of diesel fuel.
o Injector cleaning - Partially clogged fuel injectors result in
poor injector spray characteristics and produce unusually high
emissions and poor engine efficiency. Premium diesel fuels will
contain detergent additives designed to keep injectors clean.
DurAlt(R) FC improves the detergency action of diesel fuel and
keeps injectors clean.
o Reduced combustion noise and improved efficiency - Higher cetane
fuels reduce combustion noise and improve fuel economy and power.
Diesel combustion noise is particularly annoying to owners of
diesel vehicles. DurAlt(R) FC has been shown to reduce combustion
noise while enhancing fuel economy and performance.
o Significantly reduced smoke and emissions - Diesel particulates,
when inhaled, are collected on the surface of the lungs and have
the potential to cause lung cancer. DurAlt(R) FC reduces smoke and
particulate emissions as well as unburned fuel emissions. Both of
these classes of emissions result from incomplete combustion.
DurAlt(R) Concentrated Fuel Conditioner
DurAlt(R) CFC contains the concentrated active components of DurAlt(R) FC and
a minimum of blended agents. The primary market for DurAlt(R) CFC is refinery
operations where large quantities are involved and sophisticated blending
equipment is available.
DuraFlo(R)
DuraFlo(R) antigel compound ("DuraFlo(R)") is an anti-gel compound
that is added to diesel fuel to combat problems that occur when diesel fuel
is used in winter months. When diesel fuel oil is used in winter months, the
waxes contained in the fuel can crystallize and conglomerate into larger
particles and cause plugging of filters and fuel lines. In addition, the
condensation of water in diesel fuel in winter can cause ice crystals to form
with the same plugging effect. The condensation and settling of water to the
bottom of fuel tanks also allows bacteria and algae to grow at the interface
between the oil and the water. The bacteria cause fuel to deteriorate and
secrete acids which attack tank linings. The algae and bacterial growth also
plugs filters and fuel lines.
DuraFlo(R) is composed of ingredients targeted to those specific
problems described above. One ingredient acts chemically to prevent the
formation of large three-dimensional wax crystals. A second ingredient in
DuraFlo(R) antigel compound acts to keep wax crystals in a finely-dispersed
state that allows easy passage through fuel lines and filters, even at very
low temperatures. A third ingredient of DuraFlo(R) shows, during testing, the
capability of causing dispersed water to settle rapidly from the fuel for
easy removal before ice crystals form to block fuel lines and filters.
Additionally, DuraFlo(R) prevents growth of algae and bacteria which
typically multiply at the bottom of large fuel storage tanks at the oil/water
interface.
84
DuraSta(R)
DuraSta(R) fuel stabilizer ("DuraSta(R)") provides improved long-term fuel
oxidation stability in both gasoline and distillate fuels and is marketed to
improve the long-term storage characteristic of gasoline and diesel.
When fuels are stored for long periods of time, they begin to deteriorate as
the result of oxidation and bacterial growth. When added to fuel, DuraSta(R)
retards oxidation and prevents growth of algae and bacteria. Additionally,
DuraSta(R) contains a de-icer/water precipitator to precipitate suspended
water from fuel and reduce the water freeze-point for easier separation and
draining from fuel tanks; and a corrosion inhibitor to reduce corrosion in
the fuel tank in which it is stored and the engine in which it is utilized.
DuraSta(R) can also be added to fuel that has already begun to deteriorate in
long term storage and will reverse that deterioration process. PMC believes
that DuraSta(R) will improve fuel combustion for a cleaner running engine
with reduced emissions and less combustion chamber deposit formation.
DuraKleen
DuraKleen(TM) residual and crude oil compound ("DuraKleen(TM)") is designed
for treating "bunker C" type heavy oils. DuraKleen(TM) contains effective
emulsifier agents that control the formation of sludge and stratification
during storage and transportation. Residual oils (such as #6 heating oil) are
a major fuel source for such users as large ships, utility generators,
heating plants in large buildings, tankers, and transport barges. These
residual oils or crude oils contain dispersed carbon and asphaltine particles
which settle during shipping and tank storage. During barge shipments of
heavy oil, 1% to 4% of the oil can be lost due to undeliverable oil volume
when those particles settle as sludge to the bottom of barges. This sludge
cannot be pumped out, and barge or tanker companies suffer large expenses
when barges or tankers must be taken out of service for periodic cleaning.
Residual oils also cause major problems in heating plants, where they plug
filters and furnace burners and reduce combustion efficiency.
DuraKleen(TM) was formulated to solve these problems by keeping heavy oil and
sludge particles suspended uniformly in a finely divided state. Field tests
have shown that DuraKleen(TM) is capable of re-establishing sludge suspension
in large storage tanks containing already-settled fuel. In addition,
DuraKleen(TM) contains a de-mulsifier for dispersed water, causing water to
settle rapidly to tank bottoms, where it can be easily removed, thus
improving oil quality. DuraKleen(TM) further improves oil quality and tank
life by reducing algae and bacteria growth in DuraKleen(TM)-treated fuel oil
or crude oil.
Marketing
Prior to the recent market developments driven by emerging environmental
priorities, DurAlt(R) FC was used as an aftermarket product in limited
distribution channels. Nevertheless, the product has already been used
successfully in the U.S. in more than one billion gallons of fuel as a bulk
treatment additive by several wholesale fuel distributors of major oil
companies, servicing the needs of consumers, fleet operators, marine harbors
and retail service stations. Current consumer aftermarket initiatives include
private labels with Amway Corporation, Harley-Davidson Motor Company, and
MotorVac Technologies, Inc.
85
Potential customers for DurAlt(R) FC would include all U.S. and international
oil refining companies, such as Exxon-Mobil, BP Amoco Arco, Shell, and
TotalFina Elf and international petroleum additive companies, such as Ethyl,
Octel, Lubrizol and BASF. In addition, PMC believes a large consumer
aftermarket for DurAlt(R) FC is available through private label arrangements,
automotive stores, discount/department store/supermarket automotive
departments and gasoline service stations.
Target markets currently consist of the U.S., Western Europe, Japan and the
developing countries of Africa, Asia, Eastern Europe and Latin America. While
lead phase down from gasoline has progressed in some of these markets, lead
is still present in gasoline in many of the developing countries. Use of
PMC's fuel additive technology would help to reduce the need for lead in
these markets. In addition, in the U.S. and other countries where lead has
been eliminated from gasoline, positive performance and emissions results can
still be achieved, including visible and dramatic improvements in diesel fuel
tailpipe emissions.
In the United States and other developed markets using unleaded gasoline, the
key market issues addressed by DurAlt(R) FC are driven by recent
environmental regulations and the resultant performance requirements of auto
manufacturers. For example, in the U.S. gasoline market, recent EPA
regulation requires the use of detergents in all gasoline motor fuels.
Detergents maintain cleanliness of injectors and inlet valves in automotive
fuel supply systems. Unfortunately, these detergents add deposits in the
final stage of the engine, the combustion chamber, which cause problems
related to increased octane demand, engine start-up clatter ("cold rapping")
and overall reduced performance related to fuel economy and emissions.
In response to this problem, auto manufacturers are demanding the use of
additive technology in gasoline that would reduce combustion chamber deposits
(CCDs). DurAlt(R) FC technology reduces CCDs and engine octane requirement
increase (ORI). Thus, DurAlt(R) FC could be added to gasoline by oil refiners
to offset the negative effects of CCD buildup caused by detergents while
generally improving overall engine performance.
In a multi-year research project with a major oil company, DurAlt(R) FC
technology was successfully combined with various detergent additive
chemistries resulting in PMC securing sixteen new patents. DurAlt(R) FC
could, therefore, be sold directly to detergent additive manufacturers,
combined with detergent additive packages, and sold to oil refiners.
Combining DurAlt(R) FC with detergent chemistries would result in a valid
performance claim of improved engine cleanliness starting at the tip of the
fuel injector, working throughout the fuel inlet system, through the
combustion chamber and out the exhaust valve. This would satisfy automaker
complaints concerning the CCD buildup effects of detergent additives while
preserving and enhancing the long-term emissions and fuel economy benefits
provided by detergent additives.
Further, because its ability to reduce ORI would enable automobile
manufactures to achieve improved fuel economy by optimizing the tuning of
their engines for use with lower octane fuel, DurAlt(R) FC could ultimately
be used on a national basis to assist car companies and oil refiners in a
combined effort to improve overall U.S. fleet fuel economy averages and
contribute to an across-the-board reduction of greenhouse gases from
automotive engines.
86
In U.S. markets such as California, "reformulated gasoline" containing
oxygenates, such as MTBE (blended into gasoline at up to 15% by volume), are
used to reduce ozone related emissions. MTBE also boosts the octane rating of
fuel. In recent developments, MTBE seepage into the water table has been
shown to contaminate water supplies and may be linked to certain respiratory
problems in people fueling automobiles at service stations. As a result of
these problems, recommendations have been made to phase MTBE out of gasoline.
One effect of such an action would be to reduce the "octane pool" available
to oil refiners, thus encouraging the use of ORI control fuel additive
technologies such as DurAlt(R) FC (used at approximately 100 ppm in
gasoline).
In summary, octane rich components of gasoline including aromatics, such as
benzene, octane enhancing blending stocks, such as MTBE, and metallic
additives, such as tetraethyl lead, that boost octane rating of gasoline, are
being discontinued or disfavored because of concerns related to health
effects and emissions. Auto manufacturers assert that reducing octane
requirement increase is preferable to boosting octane rating of gasoline.
This is true from economic, performance and environmental standpoints. Oil
refiners, on the other hand, have historically preferred to sell higher
octane features of gasoline to the motoring public at a significant price
differential.
However, Arco, California's largest gasoline retailer recently made a
strategic market decision to focus on sales of regular and mid-grade fuels
and to de-emphasize premium. Furthermore, over the past twelve months, some
major oil companies in the U.S. and Europe, including BP Amoco and Elf
Aquitaine have broken ranks and are now pursuing a business and market
strategy calling for voluntary reductions by oil companies of greenhouse gas
emissions and reduced sulfur content in motor fuels. As a result of this
newly developing environmental trend among major oil refiners, there is
renewed interest in DurAlt(R) FC technology in the U.S. and Europe. The move
toward voluntary environmental improvement by major oil refiners is not only
practical but also responds to the demands of their industry partners, the
auto manufacturers, who are vigorously soliciting assistance from oil
refiners in dealing with problems related to CCDs, ORI, fuel economy and
emission performance as a result of government environmental regulations.
PMC has entered into a memorandum of understanding with the additives
division of a major European oil company to sell DurAlt(R) FC as a bulk
treatment additive to oil refiners. Marketing initiatives to the consumer
aftermarket will also be pursued under the agreement. Additional candidates
have been identified and preliminary negotiations are underway with a number
of them.
Additionally, PMC is negotiating directly with a small number of major oil
companies to secure one or more as customers to bulk treat their fuels with
DurAlt(R) FC at their refineries. Confidentiality agreements are in place and
discussions are underway with three major oil companies. One major oil
company has already validated DurAlt(R) FC performance claims for gasoline in
extensive laboratory tests.
PMC also has private label arrangements with three companies who sell
DurAlt(R) FC within the consumer market and for use by fleets.
87
Production
PMC's product manufacturing is contracted with Grow Automotive, a wholly
owned subsidiary of PPG Industries, Inc. PPG is a $7 billion coatings, glass
and specialty chemical manufacturer based in Pittsburgh. The exclusive
contractual agreement eliminates the need for PMC to make a large capital
investment in manufacturing equipment and expertise and assures quality
control and a reliable supply of PMC's product.
PMC's relationship with Grow provides the "reliable supplier" corporate
profile that is required by major oil companies and other large customers of
petroleum additives. PMC's twelve-year relationship with Grow Automotive/PPG
has provided PMC with an uninterrupted supply of DurAlt(R) FC and PMC's other
products, and guarantees excellent product quality assurance and reliability.
Grow Automotive operates production facilities in Detroit, Michigan, and
Baton Rouge, Louisiana. Grow's parent company, PPG, maintains production
facilities and operations worldwide. This extensive network enables PMC to
provide product and logistical support to meet its customers' needs at
competitive costs while preserving good profit margins. These margins will
improve as production volumes increase. In addition to worldwide
manufacturing and quality assurance capabilities, the relationship gives PMC
access to in-depth information concerning transportation, regulation,
handling and storage of petroleum additives without developing or managing
those services and expertise internally.
Patents & Trademarks
PMC has aggressively pursued patents in the US and worldwide. Currently, PMC
holds 38 U.S. and foreign patents, with one additional U.S. patent pending
and 15 U.S. and foreign trademarks. PMC believes the extensive patents verify
the proprietary nature of its technology. The patents have not been
challenged and its technology has been licensed to major corporations, oil
refiners, and consumer retail sectors.
In addition to patents covering DurAlt(R) FC, PMC has also pursued patents
for DurAlt(R) blended with all major detergent additives. The resultant
patents now provide a single marketable package that controls engine deposits
from the fuel injectors to the exhaust valve. Environmental requirements, by
government organizations and engine manufacturers, for additives that control
all engine deposits represent a several billion-dollar world market
opportunity. Those patents covering DurAlt(R) with detergent additives are
newly issued, allowing protection for many years into the future.
Competition
PMC believes DurAlt(R) FC has no direct competition at this time. Existing
fuel additives are not comparable and cannot make the same performance claims
as DurAlt(R) FC technology. Some additive manufacturers make limited claims
addressing some but not all of PMC's performance claims. DurAlt(R) FC is
non-metallic, has performance claim verification by several auto
company/engine manufacturer and environmental groups, and has been approved
for bulk treatment of unleaded gasoline by the U.S. EPA.
88
However, there are numerous companies, including Lubrizol, Ethyl Corporation
and Octel, that are engaged in the business of manufacturing and selling
chemical additives for petroleum products. Although PMC believes that PMC's
products compare favorably with those currently on the market, all of PMC's
competitors have substantially greater resources, as well as established
distribution networks and market shares. PMC's competitors have expended
substantial sums on advertising to establish product identity and brand
recognition, and will not, for the foreseeable future, be in a position to
establish product identity or brand recognition in this manner. PMC will face
intense competition from its competitors in its attempt to introduce its
products into the market. There can be no assurance that PMC will be able to
introduce and market its products successfully.
Employees
PMC currently has seven full-time and one part time employees, including four
management employees in Colorado and three administrative personnel in
Michigan. PMC believes its relationship with its employees is excellent.
PMC MANAGEMENT
Directors and Executive Officers
The following sets forth certain information concerning PMC's directors and
executive officers:
Name Age Position
---- --- --------
Mark L. Nelson 52 Chairman, President and CEO
Gerald E. Patera 58 Interim CFO
Chandra B. Prakash, Ph.D. 62 Vice President - Environmental &
Vehicle/Fuel Regulations
Alan L. Smith 56 Director and Vice President and
Senior Automotive Industry Advisor
Mary A. Stuart 45 Vice President, Administrative Services
Otis L. Nelson, Jr. 75 Chairman Emertitus
A. Richard Nelson 69 Director and Secretary
Richard Socia 55 Director
John Loveall 50 Director
Terry Maynard 52 Director
Robert MacKenzie 55 Director
Mark L. Nelson serves as PMC's Chairman, President and Chief Executive
Officer. Mr. Nelson is one of the co-founders of PMC. He has led PMC in
development of its products, key business relationships, distribution system,
marketing activities, research that confirmed product performance, and
acquisition of patents. Mr. Nelson has extensive management and industry
experience and continues to manage PMC's key business relationships. He has
overall responsibility for activities related to business and market
development, establishment of strategic alliances, legal affairs and capital
formation.
89
Gerald E. Patera has been serving as PMC's interim Chief Financial Officer
since August, 1999. He has a thirty-year diversified business background that
includes over twenty years of executive level experience in manufacturing,
banking and computer industries. He began his career in accounting and
financial analysis, first with an automotive supplier, then with Chrysler
Corporation, where he was selected for the High Potential Development
Program. Career changes led to management and executive level positions, most
notably as Vice President over a large operations group at a major commercial
bank; Vice President & CFO of a $200 million computer peripherals
manufacturer; and as President and CEO of a NASDAQ listed holding company
that he guided through several acquisitions and multiple equity offerings
while establishing working relationships with the Securities & Exchange
Commission, investment bankers, stockbrokers and shareholders. Mr. Patera is
a principal of Bridgestone Capital Group, L.L.C. In addition to his other
responsibilities, Mr. Patera is currently affiliated with the National
Association of Securities Dealers as a member of the Board of Arbitrators for
NASD Regulation, Inc. Mr. Patera received his Bachelor's degree in Business
Administration with majors in finance and economics from Eastern Michigan
University in 1968.
Chandra B. Prakash, Ph.D. is PMC's Vice President Environmental &
Vehicle/Fuel Regulations, with special focus in India, Canada and other
international markets Dr. Prakash is a world respected government scientist
and manager. Prior to joining PMC in November, 1997, Dr. Prakash was Head of
Transportation Fuels with the Federal Department of Environment in Canada. He
provided technical expertise and guidance related to various transportation
fuels in motor vehicles and the interactions of emissions, engines, and
fuels. He also provided recommendations to senior managers and the Minister
related to the environmental implications of the use of various
transportation fuels including alternative fuels. Dr. Prakash also managed
R&D programs with a budget over half a million dollars per year and has
authored over 60 technical papers and presentations at various worldwide
symposia. Dr. Prakash attended a University in India and received a Bachelor
of Science degree with majors in Physics, Chemistry, and Mathematics and a
Master of Science degree in Mathematics. He also received a Bachelor of
Science degree in Chemical Engineering from a second University in India. He
received his Ph.D. degree in Chemical Engineering from the University of
British Columbia in Canada.
Alan L. Smith has been PMC's Vice President and Senior Automotive Industry
Advisor since February, 1998 and one of its Directors since November, 1998.
He joined PMC upon retiring from a highly diversified 33-year career with
Ford Motor Company. Mr. Smith began his career in 1963 as a co-op student at
the Ford Motor Company Scientific Research Laboratory. His work included
design and development of early exhaust emission control technologies and
advanced engine concepts. After graduating from the University of Michigan
with Bachelor's and Master's degrees in Mechanical Engineering, he continued
working in Ford Research on alternative gasoline engines for passenger cars,
including two-stroke, stratified charge, Rankin cycle, and Wankel engines.
During this time, he was Supervisor of Development for the first small
4-cylinder engine designed by Ford in the U.S. This engine was later put into
production as the 1.6L Ford Escort engine, where it presently has the
distinction of being the #1 selling engine in the world. Mr. Smith moved to
Ford Powertrain Product Engineering in 1983 as the Manager responsible for
the design and development of the 2.3L OHV engine which was subsequently used
for ten years in the Tempo and Topaz vehicles. He later became the Powertrain
Manager for Ford's first world car, known as the Mondeo in Europe and the
Contour/Mystique in the U.S. This vehicle program contained more powertrain
complexity than
90
any ever attempted by Ford. It included two all new engines and two all new
transmissions, and the design and development responsibility was shared by
Ford engineers located in four countries; England, Germany, Belgium, and the
United States. In this position, Mr. Smith was responsible for overall
powertrain systems engineering, control system specification and calibration,
and engine/transmission performance, including emissions, fuel economy and
driveability. After twenty-nine years of experience in all areas of engine
design and development, Mr. Smith moved in 1992 to the position of Chief
Powertrain Reliability Engineer, where he was responsible for development and
implementation of Quality and Reliability standards and procedures for all
Ford engines and transmissions, worldwide. This led to two subsequent
promotions to Director of Quality for Ford Electronics and later, Director of
Quality for all Ford commercial vehicles, worldwide. During this time, Ford
began the most significant corporate restructuring ever attempted by an
organization of its size, moving to global vehicle teams. Mr. Smith played a
key role as a member of the team designing the processes, structure, roles
and responsibilities, and selecting personnel. Mr. Smith's professional
affiliations include membership in the Society of Automotive Engineers, where
he served as an active member of the Passenger Car Engine Committee. In this
capacity he was responsible for organizing Technical Sessions for the Annual
SAE International Exposition. This included assessment of technical papers
submitted for publication and presentation.
Mary A. Stuart joined PMC in 1997 and serves as Vice President,
Administrative Services. She earned a Bachelor of Science in Business
Administration from Regis University in Denver, Colorado. Ms. Stuart has
extensive Business, Investor and Media Relations experience and is uniquely
qualified to represent PMC in the areas of development and management of
office services, personnel development, employee benefit programs, third
party administrative service relationships and other administrative areas.
Otis L. Nelson, Jr. is Chairman Emeritus and one of the founders of PMC. Mr.
Nelson is co-inventor of PMC's products, an advisor to PMC and Chairman of
Polar Research Corporation, a Michigan corporation ("Polar Research"). Polar
Research is independent of PMC. Mr. Nelson is the father of Mark L. Nelson
and the brother of A. Richard Nelson.
A. Richard Nelson is a Director and Secretary of PMC. He is one of the
co-founders of PMC and a co-inventor, with his brother, Otis L. Nelson, and
his nephew, Mark L. Nelson, of the inventions which are the subject of the
Patents. Mr. Nelson is also President of Polar Research Corporation, a
Michigan corporation ("Polar Research"). Polar Research is independent of
PMC, but assists PMC in development and refinement of the intellectual
property which is at the core of PMC's products. Mr. Nelson manages chemical
research, patent development and technical patent activities and oversees
production and quality control of PMC products.
Richard J. Socia has served as a Director of PMC since 1995. He is the
principal of a real estate firm in Michigan, and for 29 years has conducted a
successful real estate business. Mr. Socia serves as a director and officer
of numerous business, civic and charitable organizations.
John Loveall has served as a director of PMC since 1995. Mr. Loveall began
his business career by developing a lumber business, and then entered
commercial banking. Mr. Loveall recently sold his other businesses. Mr.
Loveall has numerous charitable and civic interests, and is an active
investor.
91
Terry Maynard has served as a director of PMC since 1995. He is marketing
director for an investment advisors firm in Michigan. Mr. Maynard has spent
over 17 years as a financial consultant and a registered representative for
regional and national brokerage firms. Mr. Maynard holds many securities and
insurance licenses and serves as an Arbitrator for the National Association
of Securities Dealers.
Robert MacKenzie has served as a director of PMC since November, 1998. He
enjoyed a 33-year career in restaurant management, at times managing up to
130 employees. Mr. MacKenzie provided educational opportunities for employees
through tuition and other financial assistance. Currently, his pursuits
include investing in real estate and managing certain properties. Mr.
MacKenzie has numerous charitable and civic interests, and is an active
investor.
Our current plans include increasing our management staff by the addition of
two management personnel; a Chief Financial Officer and a Marketing Director
to complement our existing management team.
Board Compensation
Except as set forth below, PMC currently does not pay its directors for their
services as directors, but will reimburse them for any out-of-pocket expenses
they incur in the performance of their duties as directors. In March 1999,
PMC issued options to Messrs. Alan Smith and Robert MacKenzie, members of the
Board of Directors, that enable them to each purchase 25,000 shares of PMC
common stock at an exercise price of $.001 per share during the period ending
September 30, 2004.
Board Committees and Corporate Governance
PMC has agreed with the broker-dealers who acted as placement agents for the
sale of its Series A Preferred Stock that it will cause its Board of
Directors to replace two of PMC's existing directors with persons that are
acceptable to the Placement Agents. PMC has also agreed to form an Audit
Committee and a Compensation Committee of its Board of Directors. Those
committees will be established and operate in accordance with the standards
set forth for companies whose securities are listed on the NASDAQ Small Cap
Marketsm. PMC has also agreed that it will provide its shareholders with all
reports that a NASDAQ listed company is required to provide to its
shareholders. PMC's agreement to comply with those NASDAQ requirements will
apply even if it does not have any securities listed on NASDAQ.
Executive Compensation
The following table shows all the cash compensation paid or to be paid by
PMC, as well as certain other compensation paid or accrued, during the fiscal
years indicated, to its Chief Executive Officer and each other Executive
Officer who received total annual salary and bonus in excess of $100,000 in
any fiscal year. Those persons are collectively referred to as the "Named
Officers".
92
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
--------------------------------------------- --------------------------
Other Restricted Shares
Year Annual Stock Underlying All Other
Name and Principal Ended Compensation Awards Options Compen-
Position March 31 Salary ($) Bonus ($) ($)(1) ($) (#) sation ($)
- ------------------ -------- ---------- --------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mark L. Nelson 1999 $ 12,500 -0- $162,500(2) -0- 2,577,167(4) $77,726(3)
President and 1998 112,500 -0- -0- -0- 830,000(5) 48,655(3)
Chief Executive
Officer
Chandra Prakash, Ph.D 1999 20,818 -0- 110,519(2) -0- 300,000 -0-
Vice President 1998 32,790 -0- 30,000(2) -0- 200,000(6) -0-
Alan L. Smith 1999 18,833 -0- 33,333(2) -0- 325,000(7) -0-
Vice President 1998 -0- -0- 16,667(2) -0- 200,000(7) -0-
<FN>
(1) The value of benefits and other perquisites are less than 10% of the
total annual salary and bonus. PMC does not currently provide any 401(k)
plan, retirement pension, health insurance or other similar benefits to
its officers or employees.
(2) This represents salaries that were deferred during the year and not yet
subsequently paid.
(3) These are patent royalties paid to Mr. Nelson pursuant to patent
assignment and license agreements. See "PMC Management - Certain
Transactions" for a description of those agreements.
(4) These options were granted to Mark Nelson in connection with the
assignment of patents and patent applications. This amount is the net
amount of options retained by Mr. Nelson after assigning a portion of
those options to investors who had provided funds in exchange for a
portion of all patent royalties received by Mr. Nelson, his father and
his uncle. See "Certain Transactions - Patent Assignments and License"
below.
(5) Includes options for 580,000 shares of PMC common stock granted to Mr.
Nelson pursuant to a patent license agreement and options for 250,000
shares of PMC common stock granted pursuant to the 1997 Incentive Stock
Option Plan. See "Stock Option Plan" and "Certain Transactions - Patent
Assignments and License" below.
(6) These options were granted pursuant to the 1997 Incentive Stock Option
Plan.
(7) Includes options for 25,000 shares granted as compensation for services
as a director.
The following table sets forth information with respect the grant of options
during the past fiscal year to the Named Officers for their services as
officers or directors. PMC has not granted any Stock Appreciation Rights
("SAR's").
</TABLE>
93
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
% of Total
Options
Number of Granted to Exercise
Options Employees in or Base Expiration
Name Granted Fiscal Year(1) Price ($/Sh) Date
- ---- -------- -------------- ------------ ----------
Mark L. Nelson 0 (2) 0.0% -- --
Chandra B. Prakash, Ph.D. 300,000 24.0% $.001 9/30/2004
Alan L. Smith 325,000 26.0% $.001 9/30/2004
(1) During the year ended March 31, 1999, options for a total of 1,250,000
of PMC stock shares with an exercise price of $.001 per share were
granted to employees and directors in their capacities as employees and
directors. Additional options were also granted to persons who are
employees and/or directors for patent assignments, debt conversions and
loans.
(2) Does not include options granted for patent assignments.
The following table sets forth information with respect to the Named Officers
concerning exercise of options during the last fiscal year and unexercised
options held as of the end of the fiscal year. PMC did not have any SARs
outstanding.
<TABLE>
<CAPTION>
Aggregated Option Exercises and Fiscal Year-End Option Values
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options/SARs
Shares FY-end (#) at FY-end (#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
- ----------- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Mark L. Nelson 0 0 3,407,167(2) $300,921
Chandra B. Prakash, Ph.D. 0 0 500,000 $59,700
Alan L. Smith 0 0 525,000 $64,675
<FN>
(1) Because PMC's common stock is not publicly traded, there is currently no
market valuation for the shares issuable upon exercise of these options.
For purposes of this calculation, PMC has assumed that its common stock
was valued at $.20 per share.
(2) Includes options for 3,197,167 shares of PMC common stock that were
issued to Mr. Nelson in exchange for patent assignments.
</TABLE>
Employee Stock Option Plan
In December, 1997, PMC's Board of Directors adopted the 1997 Incentive Stock
Option Plan (the "Plan"), pursuant to which 1,500,000 shares of PMC common
stock were reserved for issuance upon the exercise of options to be granted
under the Plan. The Plan was approved by PMC's shareholders in January 1998.
The Plan is intended to promote PMC's growth and
94
profitability to provide PMC's employees who are largely responsible for the
management, growth and promotion of PMC's business with an incentive to
continue to make substantial contributions to PMC's success and to provide
those key employees with the opportunity to purchase PMC's common stock.
The Plan is administered by a committee (the "Option Committee") consisting
of three persons selected by the Board. The Option Committee has the
authority to designate the key employees eligible to participate in the Plan,
to prescribe the terms of award, to interpret the Plan, and to make all other
determinations for administering the Plan.
The Plan provides for granting of stock options that will be "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code of
1986 (the "Code"). Incentive Stock Options are required to be issued at an
option exercise price per share equal to the fair market value of a share of
common stock on the date of grant, except that the exercise price of options
granted to any employee who owns (or, under pertinent Code provisions, is
deemed to own) more than 10% of PMC's outstanding common stock must equal at
least 110% of fair market value on the date of grant. Exercise of a stock
option will be subject to terms and conditions established by the Option
Committee and set forth in the instrument evidencing the stock option. Stock
options may be exercised with either cash or shares of PMC common stock or
other form of payment authorized by the Option Committee. The date of
expiration of a stock option will be fixed by the Option Committee but may
not be longer than ten years from the date the option is granted.
As of November 30, 1999, options to purchase a total of 900,000 shares of PMC
common stock were outstanding pursuant to the Plan, including the following
options held by executive officers: Mark L. Nelson-250,000 shares; Chandra B.
Prakash-200,000 shares; Alan L. Smith-200,000 shares; and Mary A.
Stuart-100,000 shares.
Indemnification of Directors and Officers
The Utah Revised Business Corporation Act contains provisions entitling PMC's
directors and officers to indemnification by us for liability arising out of
certain actions. Additionally, PMC's Articles of Incorporation provide that,
to the fullest extent permitted by law, a director shall not be liable to PMC
or its stockholders for monetary damages for the breach of fiduciary duty as
a director. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to PMC's directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, PMC
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by PMC of
expenses incurred or paid by one of its directors, officers or controlling
persons in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling persons, PMC will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by PMC is against public policy as expressed in
the Act and will be governed by the final adjudication of that issue.
95
PMC Certain Transactions
Patent Assignments and License
PMC's business depends upon the inventions that are the subject of its
patents. Messrs. Otis L. Nelson, Jr., Mark L. Nelson and A. Richard Nelson,
who are officers, directors and principal shareholders of PMC, are the
inventors of PMC's products and applied for the initial patents thereon. In
1986, the Nelsons had assigned certain patents and patent applications to PMC
in exchange for minimum guaranteed royalties to be paid to the Nelsons on a
quarterly basis beginning in February, 1986. Although PMC filed for
bankruptcy in 1993, that patent assignment was expressly assumed by PMC in
the plan of reorganization that was approved by the Bankruptcy Court in
December, 1994. Under the terms of that 1986 patent assignment, the Nelsons
would have been owed approximately $838,000 in unpaid royalties as of June
30, 1997. At that time, in order to resolve any uncertainties and in an
effort to reach a mutually agreeable resolution of the amounts to be paid and
the time during which they would be paid, PMC and the Nelsons agreed to enter
into new agreements with respect to those patents. Pursuant to a Consolidated
Patent Assignment Agreement dated as of April 1, 1997 (the "Patent Assignment
Agreement"), the Nelsons confirmed that they had assigned to PMC the U.S. and
foreign patents and patent applications set forth therein and waived any
unpaid obligations under the prior agreement. In exchange, PMC gave the
Nelsons promissory notes in the aggregate amount of $1,694,181 as payment of
all royalties (described below) that would have been due with respect to the
assigned U.S. patents for the period ending December 31, 1997 and with
respect to the assigned foreign patents for the period ending December 26,
2000. PMC also agreed to pay the Nelsons royalties with respect to the
assigned U.S. patents for the periods commencing January 1, 1998 and with
respect to the assigned foreign patents for the periods commencing December
27, 2000. The royalties to be paid were 5% of the gross receipts that PMC
received from sales of products that were covered by the assigned patents
plus an amount equal to 10% of the gross receipts from licensing fees PMC
received with respect to the assigned patents. Those royalties were to be
paid until all those patents expired. Because the Nelsons and PMC's directors
and principal shareholders were concerned that another party might seek to
gain control of PMC in order to acquire its patents, the Patent Assignment
Agreement provided that the assigned patents would be reconveyed to the
Nelsons upon the occurrence of certain events including PMC's failure to pay
the amounts owed, a hostile takeover, or sale of the assigned patents, PMC
bankruptcy or the sale of all or substantially all of PMC's assets without
the approval of the Nelsons. The Patent Assignment Agreement also gave the
Nelsons the right to nominate the majority of PMC's directors. The Patent
Assignment Agreement has been superceded by the Modification Agreement
described below.
Pursuant to a Consolidated Exclusive License Agreement dated as of July 1,
1997 (the "Patent License Agreement"), the Nelsons gave PMC an exclusive
license to a pending U.S. patent application. In exchange, PMC agreed to pay
the Nelsons royalties with respect to the licensed patent application that
were the same as the royalties to be paid pursuant to the Patent Assignment
Agreement described above. PMC agreed that there would be minimum annual
royalties commencing at $250,000 for 1997 and increasing by $250,000 for each
year thereafter. In lieu of paying those minimum annual royalties for 1997
through 2001, PMC agreed to give the Nelsons an option to purchase 8,200,000
shares of PMC common stock for $.001 per share. The Patent License Agreement
also provided that the Nelsons would have the right to elect a majority of
PMC's directors. The Patent License Agreement was superceded by the
Modification Agreement described below.
At the annual shareholders meeting held in January 1998, the shareholders of
PMC were asked to approve and ratify the Patent Assignment Agreement and the
Patent License Agreement. Approximately 68.5% of the then outstanding shares
voted in favor of that ratification and no shares were voted against that
ratification.
96
In early 1999, PMC had discussions with the representative of potential
investors and its investment banker who reviewed the Patent Assignment
Agreement and the Patent License Agreement and desired to have those
agreements modified in order to: (1) base the royalties on net pretax profits
rather than gross revenues; (2) terminate the right of the Nelsons to appoint
a majority of PMC's directors; and (3) terminate the obligation of PMC to
reconvey the patents to the Nelsons upon the happening of certain events.
After further discussion, the Nelsons and PMC entered into a Reaffirmation
and Modification of Patent Assignment and Royalty Agreements dated February
3, 1999 (the "Modification Agreement") whereby the Nelsons reaffirmed the
patent assignments that had been previously made and agreed to assign to PMC
the pending application for a U.S. patent that was previously licensed to PMC
pursuant to the Patent License Agreement. The Modification Agreement also
provided that the Patent Assignment Agreement, the Patent License Agreement
and all other prior agreements relating to the assignment or license of
patents from the Nelsons to PMC were terminated and superceded by the
Modification Agreement. Those prior agreements that were superceded by the
Modification Agreement were modified by: (1) decreasing the royalty rate from
5% of gross receipts from PMC's sales of products and 10% of PMC's gross
receipts from licensing fees to 10% of PMC's net pretax profits from sales of
products and 10% of PMC's licensing fees; (2) terminating PMC's obligation to
pay the Nelsons all accrued but unpaid royalties under the prior agreements
and cancelling the promissory notes in the aggregate principal amount of
$1,694,181 that had previously delivered pursuant to the prior agreement; (3)
terminating the right of the Nelsons to nominate a majority of PMC's
directors; and (4) terminating PMC's obligation to reconvey the patents to
the Nelsons upon the occurrence of certain events. In exchange, the Nelsons
were to be paid a one time payment of $2,000,000 in addition to the reduced
royalties described above and retaining the options for 8,200,000 shares of
PMC common stock they had received pursuant to the Patent License Agreement.
Those reduced royalties will continue in effect until the expiration of all
of the assigned patents. The Modification Agreement also provides that the
Nelsons will be granted a security interest in the assigned patents to secure
payment of all amounts owed to them pursuant to the Modification Agreement.
The Modification Agreement was subsequently modified at the request of PMC's
investment bankers so that, instead of receiving $2,000,000 in cash, the
Nelsons would receive: (a) 3,995,000 shares of PMC common stock (subsequently
converted into options to purchase 3,995,000 shares of PMC common stock for
$.001 per share); and (b) options to purchase 7,050,000 shares of PMC common
stock at $.40 per share during the five year period ending February 3, 2004.
In 1994, in order to raise funds required to purchase PMC's assets out of
bankruptcy, the Nelsons had entered into royalty sharing agreements with
several investors who provided those funds. Pursuant to those agreements, the
Nelsons agreed that, in addition to shares of common stock to be issued to
those persons, they would also be entitled to share in any royalties that the
Nelsons received. As a result, the Nelsons have assigned to those investors:
(1) a total of 3,460,000 of the 8,200,000 options the Nelsons received
pursuant to the Patent License Agreement; (2) 1,198,500 of the 3,995,000
options with an exercise price of $.001 that the Nelsons received pursuant to
the Modification Agreement; and (3) 2,115,000 of the 7,050,000 options with
an exercise price of $.40 per share that the Nelsons received pursuant to the
Modification Agreement. Among those investors who were assigned a portion of
the options granted to the Nelsons were Messrs. John Loveall and Richard J.
Socia, members of the Board of Directors. Mr. Loveall was assigned the
following options by the Nelsons: (1) options to purchase 1,219,500 shares at
an exercise price of $.001 per share and (2) options to purchase 705,000
shares at an exercise price of $.40 per share during the period ending
February 3, 2004. Mr. Socia was assigned the following options by the
Nelsons: (1) options to purchase 1,609,750 shares at an exercise price of
$.001; and (2) options to purchase 352,500 shares at an exercise price of
$.40 per share during the period ending February 3, 2004.
Other Stock Options
In addition to the options described above under "Board Compensation",
"Employee Stock Option Plan" and "Certain Transactions - Patent Assignment &
License", PMC has also granted other options as certain of its officers,
directors and affiliates for various reasons as described below.
In exchange for their agreement to cancel certain debt owed to them, in
September and October 1999 PMC granted options to Debbi Jo Socia, the wife of
Richard Socia, one of PMC's directors and to Hall & Romkema, P.C., a firm
whose principal shareholder is Terry Hall, one of PMC's principal
shareholders. Hall & Romkema, P.C. was issued options to purchase 413,733
shares at a price of $.001 per share (which options have been exercised) and
options to purchase 730,188 shares for $.40 per share during the period ended
September 30, 2000. Debbi Jo Socia was issued options to purchase 17,000
shares for $.001 per share and options to purchase 30,000 shares at $.40 per
share. In May 1998, Halso Inc., a corporation controlled by Richard Socia,
97
was issued options to purchase 75,000 shares for $.20 per share (which
options were subsequently exercised) pursuant to a loan agreement it had
entered into with PMC.
In April 1999, Chandra B. Prakash was issued options to purchase 100,000
shares for $.001 per share and Alan L. Smith was issued options to purchase
150,000 shares at $.001 per share during the period ended February 3, 2008.
In January and August 1999, Dr. Prakash was also issued two separate options
that, in the aggregate, would enable him to purchase 500,000 shares for $.001
per share during the period ended September 30, 2004. In January, July and
August 1999, Mr. Alan Smith was also issued three separate options that would
enable him to purchase a total of 775,000 shares for a purchase price of
$.001 dollars per share during the period ended September 30, 2004.
Mary Stuart, one of PMC's vice presidents, was issued options in April 1999
to purchase 100,000 shares at an exercise price of $.001 per share during the
period ended September 30, 2004 and in October 1999 was issued options to
purchase 300,000 shares at an exercise price of $.40 per share during the
period ended October 31, 2004.
As compensation for services they provided, Messrs. Terry Maynard and Richard
Socia, members of PMC's Board of Directors, were issued options on July 26,
1999 with an exercise price of $.001 per share and an expiration date of
September 30, 2004. Mr. Maynard received options for 500,000 shares and Mr.
Socia received options for 250,000 shares.
On May 10, 1999, Robert MacKenzie, a member of PMC's Board of Directors,
loaned PMC $55,000 and, as part of the loan agreement, received options to
purchase 100,000 shares. Those options will be exercisable for a period of
two years following PMC's initial public offering at a price equal to 50% of
the initial public offering price.
In December, 1999, Gerald Patera, PMC's Chief Financial Officer, was granted
options to purchase 500,000 shares at a price of $.001 per share during the
period ending December 31, 2004.
Consultant Shares
Gerald Patera is a member of Bridgestone Capital Group, L.L.C.,
("Bridgestone") a firm that has advised PMC on various financial matters and
that helped negotiate the terms of the Merger with Biorelease. In
consideration of its efforts in structuring and negotiating the terms of the
Merger and assisting PMC and Biorelease in completing the Merger, PMC and
Biorelease agreed that, subject to the Merger being completed, Biorelease
would issue shares of Biorelease common stock to Bridgestone and its
principals. Those shares are part of the 780,000 post-reverse split shares of
Biorelease common stock that are referred to herein as the "Consultant
Shares." Mr. Patera will directly receive 148,225 of those post-reverse split
shares of Biorelease common stock and, by virtue of his 17.5% ownership
interest in Bridgestone may be deemed to receive an additional 28,844
post-reverse shares of Biorelease common stock (17.5% of the 164,825 shares
to be issued to Bridgestone).
PROPOSAL TWO -- APPROVAL OF THE CHARTER AMENDMENT TO
AUTHORIZE 1,000,000 SHARES OF PREFERRED STOCK
General
Biorelease currently does not have any preferred stock authorized. One of the
conditions in the Merger Agreement is that the Biorelease stockholders
authorize an amendment to the Biorelease Certificate of Incorporation to
authorize 1,000,000 shares of preferred stock. Of those 1,000,000 shares,
100,000 would be designated as Series A Convertible Preferred Stock (the
"Series A Convertible Preferred Stock") and the remaining 900,000 shares
would be so called "blank check" preferred stock. The Series A Convertible
Preferred Stock would be issued to the holders of the PMC Series A
Convertible Preferred Stock and the remaining shares of preferred stock would
be available for future issuance by the Board of Directors. The terms of the
Series A Convertible Preferred Stock are identical to the terms of the PMC
Series A Convertible Preferred Stock, except for changes made to reflect the
Exchange Ratio used to determine the number of shares of Biorelease common
stock to be issued in exchange for each share of PMC common stock pursuant to
the Merger.
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The following summary of the proposed amendment to the Certificate of
Incorporation with respect to its authorized capital stock is qualified in
its entirety by reference to the full text of the proposed amendment, which
is attached to this Proxy Statement as Annex D.
Effect on Common Stock
Currently, holders of common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders of Biorelease and to ratably
receive dividends, if any, as may be declared from time to time by the Board
of Directors from funds legally available therefor. Upon liquidation,
dissolution or winding up of Biorelease, holders of common stock are entitled
to share ratably in any assets available for distribution to stockholders
after payment of all obligations of Biorelease. However, if the Charter
Amendment is approved, the right of the holders of common stock to receive
dividends or other distributions will also be subject to the preferential
liquidation rights of the holders of the Series A Convertible Preferred Stock
and any other preferred stock which may be issued in the future, as set forth
in the Certificate of Incorporation.
If the proposed amendment is approved, all or any part of the authorized but
unissued shares of preferred stock may thereafter be issued without further
approval from the stockholders, except as may be required by law, the
Certificate of Incorporation or By-laws of Biorelease, or the policies of any
stock exchange or stock market on which the shares of stock of Biorelease may
be listed or quoted. Those shares of preferred stock may be issued for such
purposes and on such terms as the Board of Directors may determine. Holders
of the capital stock of Biorelease do not have any preemptive rights to
subscribe for the purchase of any shares of common stock or preferred stock,
which means that current stockholders do not have a prior right to purchase
any new issue of preferred stock in order to maintain their proportionate
ownership.
The proposed Charter Amendment will not affect the rights of existing holders
of common stock except to the extent that issuances of preferred stock will
reduce each existing stockholder's proportionate ownership and may result in
the existence of preferred stock with rights superior to those of holders of
the common stock, as previously described above.
The flexibility of the Board of Directors to issue preferred stock or
additional shares of common stock could enhance the Board of Directors'
ability to negotiate on behalf of stockholders should a proposed takeover
arise. Although it is not the purpose of the proposed Charter Amendment and,
other than the proposed Merger, the Board of Directors are not aware of any
pending or proposed effort to acquire control of Biorelease, the authorized
but unissued shares of preferred or common stock also could be used by the
Board of Directors to discourage, delay or make more difficult a change in
control of Biorelease. For example, such shares could be privately placed
with purchasers who might align themselves with the Board of Directors in
opposing a hostile takeover bid. The issuance of preferred stock or
additional shares of common stock might serve to dilute the stock ownership
of persons seeking to obtain control and thereby increase the cost of
acquiring a given percentage of the outstanding shares.
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Authorization of Series A Convertible Preferred Stock
General
If the Charter Amendment is approved, Biorelease would have 100,000 shares of
Series A Convertible Preferred Stock authorized for issuance. Pursuant to the
Biorelease Merger, each share of the Series A Convertible Preferred Stock
will be exchanged for a share of PMC Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock has the same terms and conditions as
the PMC Series A Convertible Preferred Stock, except for changes made to
reflect the Exchange Ratio used to determine the number of shares of
Biorelease common stock to be issued in exchange for each share of PMC common
stock pursuant to the Merger.
Rank
Each share of the Series A Convertible Preferred Stock shall have the
same relative rights and preferences as, and shall be identical in all
respects with, all other shares of the Series A Convertible Preferred Stock.
Except as may be authorized by a vote of the holders of the Series A
Convertible Preferred Stock , the Series A Convertible Preferred Stock shall
rank senior to any other series of preferred stock now or hereafter issued by
Biorelease.
Dividends Payable in Cash and Restricted Stock
The Series A Convertible Preferred Stock will be issued for $100.00 per
share (the "Issue Price"). The holders of shares of the Series A Convertible
Preferred Stock shall be entitled to receive, when and as declared by the
Board of Directors of Biorelease and out of the assets of Biorelease legally
available therefor, cumulative cash dividends at the rate per annum of Twelve
percent (12%) of the Issue Price per share, from the date of issuance of such
shares until such shares are converted or redeemed, and payable quarterly on
the last day of March, June, September and December in each year, commencing
on December 31, 1999.
Notwithstanding the foregoing, during the period beginning January 1, 2002,
if there is an established trading market for Biorelease's common stock,
Biorelease shall have the option to pay the dividends in the form of shares
of Biorelease's common stock rather than in cash. In that event, the shares
to be issued would be valued at Fifty percent (50%) of the Current Market
Price Per Share (as defined below) of Biorelease's common stock on the
dividend payment date. For the purpose of this subsection, the Current Market
Price Per Share of common stock at any date shall be the average of the daily
closing prices for the twenty (20) business days before the date of such
computation. The closing price for each day shall be (a) the last reported
sale price regular way or, in case no reported such sale takes place on such
day, the average of the closing bid and asked prices regular way for such
day, in either case on the principal national securities exchange in the
United States on which the shares are listed or admitted to trading, or (b)
if the shares are not listed or admitted to trading on any national
securities exchange in the United States, but are traded in the
over-the-counter market in the United States, the average of the closing bid
and asked prices of the common stock on NASDAQ, the OTCBB or any comparable
system, or (c) if the common stock is not listed on NASDAQ, the OTCBB or a
comparable system, then the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by Biorelease for that purpose. All shares
issued pursuant to this paragraph will be "restricted securities" as that
term is
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defined in Rule 144 promulgated by the Securities & Exchange Commission and
therefore may not be freely sold or transferred by the recipient unless those
shares are subsequently registered under the Securities Act of 1933 or an
exemption from that registration is available. Prior to issuing any shares of
restricted common stock hereunder, the recipient will be required to execute
an investment letter containing such warranties and representations as are
customary in an issuance of securities without registration under the
Securities Act of 1933.
Dividends on the Series A Convertible Preferred Stock shall be payable before
any dividends or distributions shall be paid upon, or declared and set apart
for, any Junior Stock (as defined below) and before any repurchase,
redemption, retirement or other acquisition for valuable consideration of any
shares of Junior Stock (other than upon conversion thereof into common stock)
shall be effected, so that if in any quarterly dividend period all dividends
at the rate fixed above accrued from the date of issuance of any shares of
the Series A Convertible Preferred Stock shall not have been paid, or
declared and set apart for payment, the deficiency shall be fully paid or set
apart for payment, together with interest thereon as provided above, before
any dividends or distributions shall be paid upon, or set apart for, or any
repurchase, redemption, retirement or other acquisition for valuable
consideration is effected of, the Junior Stock (other than upon conversion
thereof into common stock). As used herein "Junior Stock" shall mean
Biorelease's common stock and each other class or series of Biorelease's
capital stock, whether common or preferred, the terms of which do not provide
that shares of that class or series shall rank senior to or on a parity with
the Series A Convertible Preferred Stock as to distributions of dividends and
distributions upon the liquidation of Biorelease.
Preference on Liquidation
The Series A Convertible Preferred Stock shall be preferred with respect to
both earnings and assets of Biorelease. In the event of the voluntary or
involuntary liquidation, dissolution or winding-up of Biorelease, the holders
of shares of the Series A Convertible Preferred Stock shall be entitled,
before any payment or distribution of the assets of Biorelease shall be made
or set apart to the holders of Junior Stock, to receive from the net assets
of Biorelease available for distribution to shareholders cash in an amount
equal to the Issue Price of such shares, together with any accrued and unpaid
dividends and any other amounts which may be payable with respect to such
shares to the date of final distribution to the holders of the Series A
Convertible Preferred Stock. The holders of shares of the Series A
Convertible Preferred Stock shall be entitled to no further participation in
any assets of Biorelease. Neither the consolidation or Merger of Biorelease
with or into any other corporation, nor the Merger or consolidation of any
other corporation into or with Biorelease, nor the sale, lease, exchange or
conveyance of all or any part of the assets of Biorelease, shall be deemed to
be a dissolution, liquidation or winding-up of Biorelease for the purposes of
this paragraph.
Voting
Except as may otherwise be required by law or for certain specified
events that may alter the rights of the holders of the Series A Convertible
Preferred Stock, the holders of shares of the Series A Convertible Preferred
Stock shall not be entitled to vote upon any matter
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Redemption by Biorelease
Commencing January 1, 2005, Biorelease shall have the right, but not the
obligation, to redeem up to One Hundred percent (100%) of the then
outstanding shares of Series A Convertible Preferred Stock at a price of
$109.00 per share plus all accrued and unpaid dividends (and interest, if
any) on such shares through and including the date selected by Biorelease for
such redemption (the "Redemption Date"). In the event of any redemption
pursuant to this paragraph, Biorelease shall determine the shares to be
redeemed by random selection among all of the outstanding Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock shall
not be entitled to the benefit of any sinking fund to be applied to the
redemption thereof.
Conversion
Subject to the terms and conditions of this paragraph, each of the holders of
shares of the Series A Convertible Preferred Stock shall have the option, at
any time and from time to time, to convert each of those shares into shares
of Biorelease common stock at a rate of one share of common stock for each
$3.00 of Issue Price of the shares so converted (with the conversion price
subject to certain specified adjustments) (such price or such price as last
adjusted, as the case may be, being referred to herein as the "Conversion
Price"). In order to exercise such conversion privilege, any such holder
shall surrender to Biorelease at its principal offices (i) the certificates
for the shares of the Series A Convertible Preferred Stock to be converted,
(ii) a notice (a "Conversion Notice") that such holder elects to convert such
shares and (iii) an investment letter in form satisfactory to Biorelease to
ensure compliance with the provisions of the Securities Act of 1933 and
applicable state securities laws. In the event that such holder elects to
convert only a portion of the number of shares of the Series A Convertible
Preferred Stock covered by a certificate surrendered for conversion,
Biorelease shall issue and deliver to such holder, a certificate or
certificates for the number of full shares of the Series A Convertible
Preferred Stock not converted.
The Conversion Price will be subject to change in the event of a stock split,
combination or reclassification of the common stock or certain other events.
The Conversion Price will also be subject to adjustment on a date that is the
later of: (a) December 31, 2000 or (b) Twelve (12) months after the
consummation of the Merger (the "Adjustment Date") if the Current Market
Price Per Share of Biorelease's common stock (as defined under "--Dividends
Payable in Cash and restricted Stock" above) is less than $3.00 per share. In
that event, the Conversion Price will be adjusted to equal to the Current
Market Price Per Share but not less than $1.50 per share.
Registration Rights
All shares issued upon conversion of the Series A Convertible Preferred Stock
will be "restricted securities" as defined in Rule 144 unless they are issued
pursuant to an effective registration statement under the Securities Act of
1933. Biorelease agrees to register all of the shares of common stock
underlying the Series A Convertible Preferred Stock in a registration
statement on the appropriate form with the Securities and Exchange Commission
(the "Commission"), so that the holders of those shares shall be entitled to
freely sell them in the public market. Biorelease will file that registration
statement not later than 90 days after the effective date of the Merger (or
such later date as may be agreed to by the broker dealers who have acted as
Placement Agents for the sale of the Series A Convertible Preferred Stock to
enable the Company to prepare
102
and include audited financial statements for the year ended March 31, 2000 in
that registration statement). If the Company does not file that registration
statement within 120 days after the effective date of the Biorelease Merger
(or such later date as may be agreed to by the Placement Agents) then the
conversion price of the Series A Preferred Stock and the exercise price of
the Warrants will be reduced by ___% of what they were prior to that
adjustment.
Authorization of "Blank Check" Preferred Stock
Pursuant to the proposed Charter Amendment, in addition to the 100,000 shares
of Series A Convertible Preferred Stock, an additional 900,000 shares of
preferred stock will be available to be issued from time-to-time by the Board
of Directors in one or more series. Subject to the provisions of Biorelease's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors would be expressly authorized to adopt resolutions to issue shares,
to fix the number of shares and to change the number of shares constituting
any series and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any series of
the preferred stock, in each case without any further action or vote by the
stockholders. Other than the issuance of the shares of Series A Convertible
Preferred Stock that will be exchanged for the shares of PMC Series A
Convertible Preferred Stock pursuant to the Merger, Biorelease has no current
plans to issue any shares of Preferred Stock.
The issuance of such preferred stock, while providing desired flexibility in
connection with possible acquisitions and other corporate purposes, could
have the effect of rendering more difficult or discouraging an attempt to
obtain control of Biorelease by means of a tender offer, proxy contest,
merger or otherwise, thereby protecting the continuity of Biorelease's
management. The issuance of shares of the preferred stock pursuant to the
Board of Directors' authority described above may adversely affect the rights
of the holders of common stock. For example, preferred stock issued by
Biorelease may rank prior to the common stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and
may be convertible into shares of common stock. Accordingly, the issuance of
shares of preferred stock may discourage bids for the common stock or may
otherwise adversely affect the market price of the common stock.
Vote Required and Effective Date
Approval of the Charter Amendment requires the affirmative vote of the
holders of at least a majority of the shares of the Biorelease common stock
entitled to vote at the Biorelease Special Meeting. With respect to such
proposal, abstentions and broker non-votes are not counted as votes cast.
If the Charter Amendment is adopted by Biorelease's stockholders, it will
only become effective if the Merger is approved and completed. The Charter
Amendment will become effective on the same date that the Merger becomes
effective.
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Recommendation
The Biorelease Board of Directors deems the Charter Amendment to be in the
best interests of Biorelease and its stockholders and recommends a vote "FOR"
approval thereof. Unless authority to do so is withheld, the person(s) named
in each proxy will vote the shares represented thereby "FOR" the approval of
the Charter Amendment.
PROPOSAL THREE - ADOPTION OF THE REVERSE STOCK SPLIT
General
The Board of Directors of Biorelease has unanimously adopted a resolution
approving, and recommending to Biorelease's stockholders for their approval,
an amendment to Biorelease's Certificate of Incorporation authorizing a
one-for-twenty five reverse stock split of the shares of common stock of
Biorelease (the "Reverse Stock Split"). The Reverse Stock Split will only
take effect if the Merger is approved and completed. If the Reverse Stock
Split is approved, the provisions of Article Fourth of Biorelease's
Certificate of Incorporation will be amended to include the following
provision (the "Reverse Stock Split Amendment"):
"Effective immediately prior to the merger of the Corporation and
Polar Molecular Corporation, a Utah corporation on __________,
2000 (the "Split Effective Time"), each share of the Corporation's
common stock that was outstanding or held as treasury shares as of
the Split Effective Time (the "Old Common Stock") shall be
automatically changed and reclassified, as of the Split Effective
Time and without further action, into one twenty fifth (.04) of a
fully paid and nonassessable share of the Corporation's common
stock. The Corporation shall not issue fractional shares on
account of that reverse split. Each person who would otherwise be
entitle to receive a fraction of a share of common stock (after
aggregating all fractional shares of common stock that otherwise
would be received by such holder) shall be entitled to receive
from the Corporation a number of shares rounded to the nearest
whole share (i.e., fractions of less than .5 will be rounded down
and fractions of .5 or more will be rounded up)."
The Reverse Stock Split Amendment will become effective immediately before
the Merger and will effect a one- for-twenty five reverse stock split of the
shares of Biorelease common stock issued and outstanding or held as treasury
shares immediately before completion of the Merger but will not change the
number of authorized shares of Biorelease common stock.
Reasons for the Reverse Stock Split Amendment
One of the requirements of the Merger Agreement is that the shareholders of
Biorelease approve the Reverse Stock Split. PMC requested the Reverse Stock
Split in an effort to increase the market price per share of the Biorelease
common stock in order to increase the likelihood that it would qualify for a
listing on the Nasdaq SmallCap Market system (the "Nasdaq SmallCap Market").
In order to obtain that listing, among other requirements, the Biorelease
common stock must initially have a bid price in excess of $4.00 per share
and, after it is listed, it must maintain a closing bid price in excess of
$1.00 per share. As of the date of this Proxy Statement, Biorelease is not in
compliance with this requirement.
104
The Board of Directors has determined that having the Biorelease common stock
listed on the Nasdaq SmallCap Market would be in the best interests of
Biorelease's stockholders by potentially significantly increasing the
liquidity of the trading market for the common stock. That increased
liquidity could increase the trading price and decrease the transaction costs
of trading shares of the common stock.
There can be no assurance, however, that the market price of the common stock
will rise in proportion to the reduction in the number of outstanding shares
resulting from the Reverse Stock Split or that the market price of the
post-split common stock can be maintained above the levels required for
listing on the Nasdaq SmallCap Market.
Potential Effects of the Reverse Stock Split
Pursuant to the Reverse Stock Split, each holder of twenty five shares of
Biorelease common stock ("Old Common Stock") immediately prior to the
effectiveness of the Reverse Stock Split would become the holder of one share
of post- Reverse Stock Split Biorelease common stock ("New Common Stock")
after consummation of the Reverse Stock Split.
Although the Reverse Stock Split will not, by itself, impact Biorelease's
assets or prospects, the Reverse Stock Split could result in a decrease in
the aggregate market value of Biorelease's equity capital. The Board of
Directors believes that this risk is outweighed by the benefits of the
potential listing of the common stock on the Nasdaq SmallCap Market.
If approved, the Reverse Stock Split will result in some shareholders owning
"odd-lots" of less than 100 shares of common stock. Brokerage commissions and
other costs of transactions in odd-lots are generally somewhat higher than
the costs of transactions in "round-lots" of even multiples of 100 shares.
Shares of Common Stock Issued and Outstanding or Held as Treasury Shares
Biorelease is currently authorized to issue a maximum of 50,000,000 shares of
common stock. As of the Record Date, there were _____ shares of common stock
issued and outstanding, or held as treasury shares. Although the number of
authorized shares of common stock will not change as a result of the Reverse
Stock Split, the number of shares of common stock issued and outstanding, or
held as treasury shares, will be reduced to a number that will be
approximately equal to (i) the number of shares of common stock issued and
outstanding, or held as treasury shares, immediately prior to the
effectiveness of the Reverse Stock Split, divided by (ii) twenty five.
With the exception of the number of shares issued and outstanding, or held as
treasury shares, the rights and preferences of the shares of common stock
prior and subsequent to the Reverse Stock Split will remain the same. After
the effectiveness of the Reverse Stock Split, except for those changes that
will result from the Merger, it is not anticipated that the financial
condition of Biorelease, the percentage ownership of management, the number
of Biorelease's stockholders, or any aspect of Biorelease's business would
materially change as a result of the Reverse Stock Split.
105
The common stock is currently registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as a
result, Biorelease is subject to the periodic reporting and other
requirements of the Exchange Act. The proposed Reverse Stock Split will not
affect the registration of the common stock under the Exchange Act.
Increase of Shares of Common Stock Available for Future Issuance
As a result of the Reverse Stock Split, there will be a reduction in the
number of shares of common stock issued and outstanding, or held as treasury
shares, and an associated increase in the number of authorized shares which
would be unissued and available for future issuance after the Reverse Stock
Split (the "Increased Available Shares"). The Increased Available Shares
could be used for any proper corporate purpose approved by the Board of
Directors of Biorelease including, among others, future financing
transactions.
Because the Reverse Stock Split will create the Increased Available Shares,
the Reverse Stock Split may be construed as having an anti-takeover effect.
Although neither the Board of Directors nor the management of Biorelease
views the Reverse Stock Split as an anti-takeover measure, Biorelease could
use the Increased Available Shares to frustrate persons seeking to effect a
takeover or otherwise gain control of Biorelease.
Effectiveness of the Reverse Stock Split
The Reverse Stock Split, if approved by Biorelease's stockholders, would
become effective (the "Effective Date") upon the filing with the Secretary of
State of the State of Delaware of a Certificate of Amendment of Biorelease's
Certificate of Incorporation that contains the Reverse Stock Split Amendment.
It is expected that such filing will take place on or shortly after the date
of the Special Meeting, assuming the stockholders approve the Reverse Stock
Split and the Merger is completed.
Commencing on the Effective Date, each Old Common Stock certificate will be
deemed for all corporate purposes to evidence ownership of the reduced number
of shares of common stock resulting from the Reverse Stock Split. As soon as
practicable after the Effective Date, transmittal forms will be mailed to
each holder of record of certificates for shares of Old Common Stock to be
used in forwarding such certificates for surrender and exchange for
certificates representing the number of shares of New Common Stock such
shareholder is entitled to receive as a consequence of the Reverse Stock
Split. The transmittal forms will be accompanied by instructions specifying
other details of the exchange. Upon receipt of such transmittal form, each
shareholder should surrender the certificates representing shares of Old
Common Stock, in accordance with the applicable instructions. Each holder who
surrenders certificates will receive new certificates representing the whole
number of shares of New Common Stock that he holds as a result of the Reverse
Stock Split. SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
106
On the Effective Date, the interest of each stockholder of record who owns
fewer than thirteen shares of common stock will thereby be terminated, and
he, she or it will have no right to vote as a stockholder or share in the
assets or any future earnings of Biorelease.
Fractional Shares
Biorelease will not issue fractional shares in connection with the Reverse
Stock Split. Instead, holders of Old Common Stock who would otherwise be
entitled to receive a fractional share of New Common Stock on account of the
Reverse Stock Split shall (after aggregating all fractional shares of
Biorelease common stock that otherwise would be received by such holder) be
entitled to receive from Biorelease a number of shares rounded to the nearest
whole share (i.e., fractions of less than .5 will be rounded down and
fractions of .5 or more will be rounded up).
Certain Federal Income Tax Consequences
The following discussion summarizing certain federal income tax consequences
is based on the Internal Revenue Code of 1986, as amended, the applicable
Treasury Regulations promulgated thereunder, judicial authority and current
administrative rulings and practices in effect on the date of this Proxy
Statement. This discussion is for general information only and does not
discuss consequences which may apply to special classes of taxpayers (e.g.,
non-resident aliens, broker-dealers or insurance companies). Stockholders are
urged to consult their own tax advisors to determine the particular
consequences to them.
The receipt of New Common Stock solely in exchange for Old Common Stock will
not generally result in recognition of gain or loss to the stockholders. The
adjusted tax basis of a stockholder's New Common Stock will be the same as
the adjusted tax basis of the shares of Old Common Stock exchanged therefor,
and the holding period of the New Common Stock will include the holding
period of the Old Common Stock exchanged therefor. No gain or loss will be
recognized by Biorelease as a result of the Reverse Stock Split.
No Appraisal Rights
No appraisal rights are available under the Delaware General Corporation Law
or under Biorelease's Certificate of Incorporation or By-Laws to any
stockholder who dissents from the proposal to approve the Reverse Stock Split
Amendment.
Recommendation of the Board of Directors
Biorelease's Board of Directors recommends a vote FOR the proposal to amend
Biorelease's Certificate of Incorporation in order to effect the
one-for-twenty five Reverse Stock Split of the shares of common stock of
Biorelease issued and outstanding, or held as treasury shares, subject to
approval and completion of the Merger.
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PROPOSAL FOUR - ELECTION OF PMC NOMINEES
One of the purposes of the Biorelease Special Meeting is to elect seven
directors nominated by PMC pursuant to the Merger Agreement, effective upon
the consummation of the Merger, each of whom shall serve until the next
annual meeting of stockholders or until their respective successors shall
been elected or qualified or until their earlier resignation or removal.
Information Concerning Nominees
Set forth below are the names each nominee for director nominated by PMC to
serve on the Biorelease Board of Directors effective upon consummation of the
Merger. Information concerning their age as of the Record Date, positions and
offices held with PMC, their principal occupation for at least the past five
years, the date which each such nominee became a director of PMC and other
directorships held by the person in companies filing periodic reports
pursuant to the Securities Exchange Act of 1934, compensation paid to them by
PMC and certain related party transactions between them and PMC is set forth
above in the section entitled "PMC Management."
PMC Nominees for Election to the Biorelease Board
- -------------------------------------------------
Mark L. Nelson
Alan L. Smith
A. Richard Nelson
Richard Socia
John Loveall
Terry Maynard
Robert MacKenzie
Recommendation
Because the Biorelease stockholders must elect the PMC Nominees to the
Biorelease Board of Directors effective upon consummation of the Merger
before PMC is obligated to consummate the Merger, the Biorelease Board of
Directors unanimously recommends that each of our stockholders vote "FOR" the
election of the nominees set forth in Proposal Number Four.
LEGAL MATTERS
The validity of the shares of Biorelease common stock to be issued in
connection with the Merger will be passed upon for Biorelease by John B.
Lowy, P.C. Certain legal matters in connection with the Merger will be passed
upon for PMC by Berry Moorman P.C., Detroit, Michigan.
EXPERTS
The consolidated financial statements of Biorelease Corp. at June 30, 1999
and 1998 and for each of the two years in the period ended June 30, 1999,
appearing in this Proxy
108
Statement/Prospectus have been audited by Ferrari & Associates, P.C.,
independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon
the authority of such firm as experts in accounting and auditing. Reference
is made to said report, which includes an explanatory paragraph with respect
to the uncertainty regarding Biorelease's ability to continue as a going
concern as discussed in Note 1 to the financial statements.
The consolidated financial statements of Polar Molecular Corporation at March
31, 1999 and for each of the two years in the period ended March 31, 1999,
included in this Proxy Statement/Prospectus have been audited by Hein +
Associates LLP, independent auditors, as set forth in their report thereon
(which contains an explanatory paragraph regarding PMC's ability to continue
as a going concern) appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing. Reference is made to said report, which includes an
explanatory paragraph with respect to the uncertainty regarding PMC's ability
to continue as a going concern as discussed in Note 1 to the financial
statements.
109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
POLAR MOLECULAR CORPORATION
Independent Auditors' Report F-2
Balance Sheets -- September 30, 1999 (unaudited) and March 31, 1999 F-3
Statements of Operations for the Six Months Ended September 30, 1999
and 1998 (unaudited) and For the Years Ended March 31, 1999
and 1998 F-4
Statements of Changes in Stockholders' Equity for the period from
April 1, 1997 Through September 30, 1999 (unaudited) F-5
Statements of Cash Flows for the Six Months Ended September 30, 1999
and 1998 (unaudited) for the Years Ended March 31, 1999
and 1998 F-6
Notes to Financial Statements F-7
BIORELEASE CORP. CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-17
Consolidated Balance Sheets
June 30, 1999 and 1998 F-18
Consolidated Statements of Operations
Two years ended June 30, 1999 and for the cumulative period
from inception to June 30, 1999 F-20
Consolidated Statements of Stockholders' Equity (Deficit)
for the two years ended June 30, 1999 and the cumulative
period from inception to June 30, 1999 F-21
Consolidated Statements of Cash Flows
Two years ended June 30, 1999 for the cumulative period
from inception to June 30, 1999 F-22
Notes to Consolidated Financial Statements F-23
110
Polar Molecular Corporation
Financial Statements
March 31, 1999
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report..............................................F-2
Balance Sheets - September 30, 1999 (Unaudited)
and March 31, 1999 ..............................................F-3
Statements of Operations - For the Six Months Ended
September 30, 1999 and 1998 (Unaudited) and
For the Years Ended March 31, 1999 and 1998......................F-4
Statement of Changes in Stockholders' Equity -
For the Period from April 1, 1997 through
September 30, 1999 (Unaudited)...................................F-5
Statements of Cash Flows - For the Six Months Ended
September 30, 1999 and 1998 (Unaudited) and
For the Years Ended March 31, 1999 and 1998......................F-6
Notes to Financial Statements.............................................F-7
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Polar Molecular Corporation
Denver, Colorado
We have audited the accompanying balance sheet of Polar Molecular Corporation
as of March 31, 1999, and the related statements of operations changes in
stockholders' deficit and cash flows for the years ended March 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polar Molecular Corporation
as of March 31, 1999, and the results of its operations and its cash flows
for the years ended March 31, 1999 and 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from
operations and has working capital and net capital deficits that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Denver, Colorado
October 18, 1999
F-2
<TABLE>
<CAPTION>
POLAR MOLECULAR CORPORATION
BALANCE SHEETS
September 30, March 31,
1999 1999
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,604 $ 6,426
Accounts receivable 10,481 23,172
Other receivables 70,447 8,560
Inventory 9,074 2,356
Prepaid expenses 21,104 3,087
------------ ------------
Total current assets 119,710 43,601
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $29,786 (unaudited) and $27,224 15,593 12,061
PATENT AND TRADEMARK, net of accumulated amortization of
$161,828 (unaudited) and $138,590 218,909 236,041
------------ ------------
TOTAL ASSETS $ 354,212 $ 291,703
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt, and notes with no stated maturity $ 402,766 $ 383,792
Notes due related parties -- 35,000
Accounts payable 321,417 509,330
Deferred revenue 743,416 743,416
Accrued payroll and payroll taxes 434,811 449,528
Other accrued liabilities 26,965 21,651
------------ ------------
Total current liabilities 1,929,375 2,142,717
NOTES PAYABLE, net of current portion 93,345 81,448
STOCKHOLDERS' DEFICIT:
Common stock - .001 par value, 150,000,000 shares authorized,
74,292,000 (unaudited) and 71,643,000 shares issued and
outstanding, respectively 74,292 71,643
Additional paid-in capital 10,039,959 8,024,179
Accumulated deficit (11,782,759) (10,028,284)
------------ ------------
Total stockholders' deficit (1,668,508) (1,932,462)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 354,212 $ 291,703
============ ============
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
POLAR MOLECULAR CORPORATION
STATEMENTS OF OPERATIONS
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $ 56,367 $ 70,085 $ 182,130 $ 306,999
Cost of revenues 23,130 37,112 61,351 63,062
----------- ----------- ----------- -----------
GROSS PROFIT 33,237 32,973 120,779 243,937
OTHER OPERATING EXPENSES:
Officers' salaries 140,000 238,695 215,861 268,889
Travel and entertainment expenses 44,439 83,946 126,758 155,538
General and administrative 375,041 264,333 717,831 805,067
Non-cash operating expenses:
Expense for stock and options issued for
royalties -- -- 2,053,995 --
Expense for stock and options granted to
employees and consultants 1,189,225 -- 1,365,210 66,825
Amortization and depreciation 25,800 22,458 54,292 43,157
----------- ----------- ----------- -----------
Total other operating expenses 1,774,505 609,432 4,533,947 1,339,476
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,741,268) (576,459) (4,413,168) (1,095,539)
OTHER INCOME (EXPENSE):
Interest expense (14,156) (34,906) (207,133) (210,333)
Other income 949 467 3,637 (7,355)
----------- ----------- ----------- -----------
Total other income (expense) (13,207) (34,439) (203,496) (217,688)
----------- ----------- ----------- -----------
NET LOSS $(1,754,475) $ (610,898) $(4,616,664) $(1,313,227)
=========== =========== =========== ===========
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
POLAR MOLECULAR CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM APRIL 1, 1997 THROUGH SEPTEMBER 30, 1999 (UNAUDITED)
Additional
Common Stock Paid-in Retained
Shares Amount Capital Deficit Total
------ ------------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1997 61,902,678 $ 61,902 $ 3,086,265 $ (4,098,393) $ (950,226)
Shares issued in conjunction with anti-dilution
provision 20,549 21 (21) -- --
Issuance of shares in private placements 2,171,000 2,171 559,929 -- 562,100
Issuance of shares for interest and services 325,000 325 66,500 -- 66,825
Net loss -- -- -- (1,313,227) (1,313,227)
---------- ------------ ------------ ------------ ------------
BALANCES, March 31, 1998 64,419,227 64,419 3,712,673 (5,411,620) (1,634,528)
Issuance of shares in private placements 1,375,803 1,376 520,625 522,001
Shares issued in connection with anti-dilution
provision 126,974 127 (127) --
Notes converted to common stock 1,500,000 1,500 311,500 313,000
Stock issued for interest 226,000 226 64,298 64,524
Stock and options issued for patent
assignment and royalties 3,995,000 3,995 2,050,000 2,053,995
Stock options issued to consultants -- -- 1,076,460 -- 1,076,460
Stock options issued to employees -- -- 288,750 -- 288,750
Net loss (4,616,664) (4,616,664)
---------- ------------ ------------ ------------ ------------
BALANCES, March 31, 1999 71,643,004 71,643 8,024,179 (10,028,284) (1,932,462)
Issuance of shares in private placements
(unaudited) 2,443,886 2,444 826,760 -- 829,204
Stock and stock options issued to employees
and consultants (unaudited) 205,000 205 1,189,020 -- 1,189,225
Net loss (unaudited) -- -- -- (1,754,475) (1,754,475)
---------- ------------ ------------ ------------ ------------
BALANCES, September 30, 1999 (Unaudited) 74,291,890 $ 74,292 $ 10,039,959 $(11,782,759) $ (1,668,508)
========== ============ ============ ============ ============
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-5
<TABLE>
<CAPTION>
POLAR MOLECULAR CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, MARCH 31,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,754,475) $ (610,898) $(4,616,664) $(1,313,227)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 25,800 22,458 50,541 53,591
Bad debt expense -- -- -- 100,000
Common stock or options issued for
services or royalties 1,189,225 -- 3,419,205 66,825
Changes in operating assets and
liabilities:
Accounts receivable 12,691 2,672 (8,462) (5,849)
Other receivables (61,887) (3,457) (8,560) 7,854
Inventory (6,718) 1,889 7,481 5,845
Other assets (18,017) -- (835) 63,612
Accounts payable (187,913) 110,062 97,965 159,061
Deferred revenue -- -- (73,111) (198,382)
Accrued liabilities (24,393) 265,429 417,792 101,369
Other liabilities -- -- 150,604 80,618
----------- ----------- ----------- -----------
Net cash used in operating activities (825,687) (211,845) (564,044) (878,683)
CASH FLOWS FROM INVESTING ACTIVITIES:
Patent additions (6,106) -- (22,511) (25,260)
Purchase of office equipment (6,094) (1,082) (1,082) (3,770)
----------- ----------- ----------- -----------
Net cash used in investing activities (12,200) (1,082) (23,593) (29,030)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from note borrowings 28,922 10,000 51,250 150,000
Cash paid on note borrowing (18,061) (91,859) (29,541) (10,681)
Proceeds from stock issuances 829,204 248,009 515,399 562,000
----------- ----------- ----------- -----------
Net cash provided by financing
activities 840,065 166,150 537,108 701,319
INCREASE (DECREASE) IN CASH 2,178 (46,777) (50,529) (206,394)
CASH, at beginning of year 6,426 56,955 56,955 263,349
----------- ----------- ----------- -----------
CASH, at end of year $ 8,604 $ 10,178 $ 6,426 $ 56,955
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ -- $ -- $ 6,946 $ 7,784
=========== =========== =========== ===========
Non-cash financing activities:
Conversion of notes to stock $ -- $ -- $ 313,000 $ --
=========== =========== =========== ===========
<FN>
See accompanying notes to these financial statements.
</TABLE>
F-6
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
1. ORGANIZATION AND NATURE OF OPERATIONS:
Polar Molecular Corporation (the "Company") was incorporated on January
12, 1984 and merged with SunCom, Inc., a Utah corporation, on January
29, 1986 in a reverse acquisition in order to facilitate the
marketability of the Company's common stock. SunCom was incorporated on
June 15, 1983 and performed no significant operations and did not have
any material financial position as of the merger date. The Company
became a public company in 1986 and was placed in bankruptcy in 1993. In
December 1994, the Company emerged from bankruptcy as a private company.
The Company provides services and various petroleum fuel additives for
use in crude and refined petroleum products.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents - The Company considers all highly liquid debt
securities purchased with an original maturity of three months or less
to be cash equivalents.
Accounts Receivable - No provision for uncollectible accounts was deemed
necessary at March 31, 1999. There were $4,022 and $8,482 of bad debts
recorded for the year ended March 31, 1999 and 1998, respectively, for
trade receivables. In addition, the Company wrote off a $100,000 loan
receivable in 1998.
Inventories - Inventories consist primarily of packaging materials and
finished products. Inventories are stated at the lower of cost
(first-in, first-out method) or market.
Income Taxes - The Company accounts for income taxes under the liability
method, whereby current and deferred tax assets and liabilities are
determined based on tax rates and laws enacted as of the balance sheet
date. Deferred tax expense represents the change in the deferred tax
asset/liability balance.
Depreciation - Depreciation of machinery and equipment is computed using
an accelerated method over estimated useful lives of 5 to 7 years.
Deferred Revenue -Deferred revenue consists of sales which were billed
in advance. Deferred revenue is being amortized based on gallons sold.
Use of Estimates - The preparation of the Company's financial statements
in conformity with generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
Stock-Based Compensation - The Company accounts for stock-based
compensation issued to employees using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options granted to employees is measured as
the excess, if any, of the market price of the Company's
F-7
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
common stock at the measurement date (generally, the date of grant) over
the amount an employee must pay to acquire the stock.
Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of assets or other assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash
flow value is required.
The Company accounts for options, warrants, and similar instruments
which are granted to non-employees for goods and services at fair value
on the grant date, as required by SFAS No. 123, Accounting for Stock-
Based Compensation. Fair value is generally determined under an option
pricing model using the criteria set forth in SFAS No. 123. The Company
did not adopt SFAS No. 123 to account for stock-based compensation for
employees but is subject to the pro forma disclosure requirements.
Research and Development Costs - These costs are expensed as incurred.
Total research and development costs totaled $20,925 and $40,538 in 1999
and 1998, respectively.
Trademarks and Patents - Trademarks and patents consist of legal costs
incurred to, as well as royalties paid, obtain the trademark and
patents. Patents are being amortized over 17 years.
Unaudited Information - The balance sheets of September 30, 1999 and the
statements of operations for the six-month period ended September 30,
1999 and 1998 were taken from the Company's books and records without
audit. However, in the opinion of management, such information includes
all adjustments (consisting only of normal recurring accruals) which are
necessary to properly reflect the financial position of the Company as
of September 30, 1999 and the results of operations for the six months
ended September 30, 1999 and 1998.
3. CONTINUED OPERATIONS:
At March 31, 1999, the Company had a working capital deficit of
approximately $2,100,000, negative equity of approximately $1,900,000,
and has incurred significant losses from operations since its inception.
These factors indicate the Company may be unable to continue operations
as a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The
financial statements do not include any adjustment should the Company be
unable to continue operations. The Company has taken the following steps
to improve its operations:
o The Company has entered into a reverse merger agreement (see
Note 12) which may facilitate the Company's ability to raise
additional capital through the sale of its common stock. This
capital is necessary for ongoing research and development and
product marketing to major oil companies with whom the Company
has ongoing projects. The Company also plans to
F-8
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
hire senior marketing personnel to further both its commercial
and consumer marketing efforts.
o Subsequent to year-end, the Company has raised $829,204
(unaudited) in private placements (see Note 12).
o Other plans include pursuing strategic relationships with
certain profitable businesses that have established customer
bases and distribution networks suitable for the Company's
products.
Continuation of the Company is dependent upon, among other things,
raising additional capital and ultimately achieving profitable
operations to satisfy its obligations, and provide future working
capital for the development and marketing of its products.
4. PATENTS:
When the Company was founded in 1986, its principal stockholders
assigned patents to the Company in return for certain licensing and
royalty rights. In fiscal 1995, the Company entered into bankruptcy.
When it emerged in December of 1995, the Company qualified for fresh
start accounting and the reorganized Company reaffirmed the patent
assignments and royalty agreements with the original stockholders. The
patents were assigned $325,000 of the reorganizational value. Upon
emergence from bankruptcy, the Company began to amortize the cost over
the average remaining life of all its patents at the reorganization
date, which was 9 years. Subsequent to its emergence from bankruptcy,
the Company capitalized an additional $43,131 relating to patent
maintenance and related legal costs. These costs are also being
amortized over the remaining 9-year life.
The Company recorded amortization of $43,157 during the year ended March
31, 1999 and $46,908 for the year ended March 31, 1998. The Company
evaluates the realizability of its patents based on estimated cash flows
to be generated from such assets. To the extent impairment is
identified, the Company will recognize a write-down of the related
assets. To date, no impairment has been identified.
5. TRANSACTIONS WITH PRINCIPAL STOCKHOLDERS:
In conjunction with the acquisition of the patents and trademarks, the
Company entered into certain royalty agreements, as defined in the
patent assignment and the license agreement.
Effective February 3, 1999, the Company entered into a reaffirmation
agreement with the principal stockholders. In consideration for all past
and future royalties due for the patents, the Company agreed to issue
3,995,000 shares of common stock (which have not yet been issued, but
are reflected as outstanding in the financial statements due to the
related party nature of the transaction), issued 7,050,000 five-year
options at $.40 per share, and issued 8,200,000 options with no
expiration at $.001 per share. The Company
F-9
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
also agreed to pay the principal shareholders 10% of all licensing fees
plus 10% of all pre-tax profits. The estimated fair value of the stock
and options of approximately 2,054,000 is reflected as royalty expense
in the accompanying statement of operations.
6. COMMITMENTS:
The Company is leasing office space in Denver, Colorado for $3,805 per
month. The agreement requires 90 days notice to terminate.
Rent expense for office space and equipment was $48,286 and $38,627 for
the years ended March 31, 1999 and 1998, respectively.
7. UNEARNED REVENUE/SIGNIFICANT CUSTOMERS:
On May 23, 1995, the Company received $1,275,000 advanced royalties from
one customer. This advanced payment of royalties gives the customer the
right to manufacture, sell and/or use 300,000 gallons of additives. As
of March 31, 1999, the unearned revenue of $743,410 represents 192,124
gallons of additives remaining to be manufactured. This revenue will be
recognized as income in the year the additives are sold or used. Revenue
recognized in 1999 and 1998 represents approximately 40% and 65% of
total sales for each year, respectively.
At March 31, 1999, 89% of the Company's receivables were from one
customer.
8. DEBT:
The Company has the following debt (all without collateral) at March 31,
1999:
Secured claims with quarterly payments of
$5,841 which includes interest at
8.25%, due April 1, 2005. $ 113,940
Notes with no specified maturity or
interest rate. In conjunction with this
borrowing in 1994, the Company issued the
noteholders 925,000 shares of
common stock. 165,000
Notes issues with an interest rate of
prime plus one, no specified maturity,
convertible at $.20 per a share. 25,000
Notes issued with an interest rate of prime
plus one, no specified maturity,
convertible at $.25 per share. 15,000
F-10
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
Notes with no specified maturity or interest
rate, payable from revenues, and
guaranteed by a stockholder. In conjunction
with the loan in 1994, the Company
issued 120,000 shares of stock. 20,000
Notes, past due, imputed interest based
on original repayment terms ranging 10,000
from 107% to 212%.
Note past due, with no specified interest rate.
In conjunction with this note, the Company
issued in 1998 40,000 shares valued at $10,000. 14,250
Notes with various terms. 102,050
----------
Total 465,240
Less current maturities and notes
with no stated maturity (383,792)
----------
Total debt $ 81,448
==========
The Company has $35,000 in notes payable to two directors at 8.5%
interest, with no specified maturity.
Aggregate annual maturities of long-term debt at March 31, 1999 are as
follows:
Years Ending
March 31, Amount
------------ ------
2000, and notes with no specific maturity $ 418,792
2001 17,140
2002 18,609
2003 20,704
2004 21,936
2005 3,059
---------
$ 500,240
=========
9. CONSULTING AGREEMENT:
On April 10, 1998, the Company entered into a consulting agreement with
a non-profit corporation. The services were paid for with the issuance
of options entitling the holders to purchase 805,750 shares of the
Company's common stock at an exercise price of $.01 per share and with
an additional 8,962,776 shares of the Company's common stock to be held
in escrow until the satisfaction of certain conditions by the non-
F-11
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
profit organization. These conditions were not satisfied, therefore, the
shares were never issued to the non-profit organization. The Company
valued the options at their fair value of $201,000.
10. STOCKHOLDERS' EQUITY:
In fiscal 1998, the Company issued 2,171,000 shares of common stock in
private placements for net proceeds of $562,100.
The Company paid for services and promotion expense during 1998 by
issuing 325,000 shares of common stock. The value of these services and
promotions were determined to be $66,825.
In fiscal 1999, the Company issued 1,325,803 shares of common stock in
private placements for net proceeds of $522,001.
In fiscal 1999, the Company issued 3,995,000 shares to officers and
Directors for certain royalties related to the patents.
In fiscal 1999, the Company issued 1,500,000 shares for the conversion
of $313,000 in debt. Conversion rates ranged from $.20 to $.25 based on
prior understandings between the parties.
In fiscal 1999, there were also 226,000 shares issued for the payment of
$64,524 of interest.
Anti-Dilution Agreement - In 1996, the Company sold 500,000 shares of
its common stock for $0.50 a share in a private placement to a limited
liability company (LLC). The Company granted the LLC a right of first
refusal to participate in any future private placements of the Company's
common stock prior to any public offering. In addition, if the Company
sells shares below $0.50, it must issue shares at no cost sufficient to
preserve the ownership of the Company by the LLC. In fiscal 1998 and
1999, the Company issued 20,549 and 80,998 shares, respectively, under
this provision.
F-12
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
Stock Options - The following is a table of options issued during 1999
and 1998:
Weighted
Average
Employees Non-employee Exercise
Options Options Price
--------- ------------ --------
OPTIONS OUTSTANDING, March 31, 1997 -- -- $ --
Options granted 900,000 -- .20
Options granted 250,000 -- .001
---------- ---------- -----
OPTIONS OUTSTANDING, March 31, 1998 1,150,000 -- .16
Options granted -- 805,750 .01
Options granted -- 9,075,000 .001
Options granted 1,250,000 -- .001
Options granted -- 7,050,000 .40
---------- ---------- -----
OPTIONS OUTSTANDING, March 31, 1999 2,400,000 16,930,750 $ .16
========== ========== =====
All options granted in fiscal 1998 were below the market value of the
Company's stock. In 1999, 10,300,000 were granted below market, and the
remaining 7,050,000 options granted in fiscal 1999 were above market. At
March 31, 1999, all options were exercisable. If not previously
exercised, options outstanding at March 31, 1999, will expire as
follows:
Weighted
Range Average
----------- Number of Exercise
Year Ended March 31, Low High Options Price
-------------------- ---- ---- --------- --------
2004 .40 .40 7,050,000 .40
2008 .001 .001 150,000 .001
No expiration .001 .20 12,005,750 .02
----------
19,205,750
==========
F-13
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
The fair value of each employee option and warrant granted in 1999 and
1998 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:
Year Ended March 31,
--------------------
1999 1998
---- ----
Expected volatility 0% 0%
Risk-free interest rate 6.25% 6.25%
Expected dividends -- --
Expected terms (in years) 5-10 5-10
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions. Because the
Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value
estimate, it is management's opinion that the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
Had compensation cost been determined based on the fair value at grant
dates for all stock option awards consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been increased to
the pro forma amounts indicated below:
Year Ended March 31,
--------------------
1999 1998
---- ----
Net loss as reported $(4,616,664) $(1,313,227)
Pro forma $(4,617,914) $(1,493,477)
11. INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the following as of
March 31, 1999:
Accrued salaries $ 157,000
Net operating loss 2,313,000
Less valuation allowance (2,470,000)
-----------
Net deferred tax asset $ --
===========
F-14
POLAR MOLECULAR CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for Periods Subsequent to March 31, 1999 is Unaudited)
At March 31, 1999, the Company has net operating loss carryforwards
totaling approximately $6,600,000. These operating loss carryforwards
expire in the years 2010 through 2019, and may be subject to limitations
due to changes in control of the Company.
12. SUBSEQUENT EVENTS (UNAUDITED):
Reverse Acquisition - In July 1999, the Company entered into a letter of
intent for a merger with a public shell company. For financial statement
purposes, Polar Molecular will be company, and this transaction will be
treated as a purchase by Polar Molecular of the public shell. For legal
purposes, however, the public shell will remain surviving entity.
Therefore, the combined entity will retain the public shell's capital
structure. Following a 1 for 25 reverse stock split by the public shell,
each outstanding share of Polar Molecular's common stock will be
exchanged for approximately 13,000,000 shares of the public shell's
stock. Polar Molecular and the public shell were unrelated entities
prior to the merger. The net assets of the public shell acquired in the
merger will be recorded at their net historical recorded value, which
approximates their fair market value. The public shell's operations will
be consolidated with Polar Molecular and included in the accompanying
statement of operations commencing on the closing of the merger.
Private Placements - Subsequent to year-end, the Company issued
approximately 2,443,886 shares of common stock for net proceeds of
approximately $829,204.
F-15
BIORELEASE CORP. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
With Independent Auditors' Report
F-16
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Biorelease Corp.
We have audited the accompanying consolidated balance sheet of Biorelease Corp.
and Subsidiary (a development stage enterprise) as of June 30, 1999, and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. The consolidated financial statements of Biorelease Corp. and Subsidiary
as of June 30, 1998 and for the year then ended have been audited by other
auditors. That report, dated, October 27, 1998 expressed an unqualified opinion
on those statements, with an explanatory paragraph regarding the uncertainty of
the entity's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Biorelease Corp. and
Subsidiary as of June 30, 1999 and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company is a development stage enterprise that, since its inception, has
incurred operating losses, and the Company does not have sufficient working
capital to support its future operations on an ongoing basis. Because of these
factors, there is substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are discussed in Note 1.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The consolidated financial statements of Biorelease Corp. and Subsidiary, for
the period from inception to June 30, 1999 have been audited by us and other
auditors. Those reports expressed an unqualified opinion on those statements,
with an explanatory paragraph regarding the uncertainty of the entity's ability
to continue as a going concern.
/s/ Ferarri & Associates, P. C.
- - -------------------------------
Ferarri & Associates, P. C.
Litchfield, New Hampshire
September 20, 1999
F-17
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Balance Sheets
June 30, 1999 and 1998
ASSETS
1999 1998
---- ----
Current assets
Cash $ 12,232 $ 1,320
Accounts receivable - trade - 8,455
- other - 745
Inventory 16,366 18,434
Prepaid expenses and other current assets - -
-------- --------
Total current assets 28,598 28,954
-------- --------
Equipment, net 5,055 10,971
-------- --------
Other assets
Intangible assets, net - 20,449
Other - 300
-------- --------
Total other assets - 20,749
-------- --------
Total assets $ 33,653 $ 60,674
======== ========
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current liabilities
Note payable $ - $ 27,500
Accounts payable 1,820 113,515
Accrued expenses 16,000 93,954
Current portion of notes payable - stockholders - 46,100
Other current liabilities - 1,549
---------- -----------
Total current liabilities 17,820 282,618
---------- -----------
Notes payable - long-term portion
Stockholders - 14,955
Other - 16,000
---------- -----------
Total notes payable - long-term portion - 30,955
---------- -----------
Other liabilities - related party 7,200 87,734
---------- -----------
Total liabilities 25,020 401,307
---------- -----------
Commitments and contingencies (Note 5)
Stockholders' deficit
Common stock of $.01 par value; 50,000,000 shares
Authorized, 11,997,738 and 10,286,659 shares
issued and 11,997,738 and 9,736,659 shares
outstanding as of June 30, 1999 and 1998,
respectively 119,977 102,867
Additional paid-in capital 9,112,069 9,140,088
Development stage accumulated deficit (9,215,339) (9,528,088)
Stock subscriptions receivable on exercise
of stock options (8,074) -
Stock subscriptions receivable (-) (50,000)
---------- -----------
8,633 (335,133)
550,000 shares of treasury stock - at par - 5,500
---------- -----------
Total stockholders' equity (deficit) 8,633 (340,633)
---------- -----------
Total liabilities and stockholders' equity (deficit) $ 33,653 $ 60,674
========== ===========
</TABLE>
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Operations
Years Ended June 30, 1999 and 1998 and
the Cumulative Period from Inception to June 30, 1999
<TABLE>
<CAPTION>
Period From
For the Year Ended June 30, Inception to
1999 1998 June 30, 1999
------------ ----------- -------------
<S> <C> <C> <C>
Revenues
Sales $ 11,630 $ 15,121 $ 173,064
Sponsored research - 47,154 355,620
Grant revenues - - 33,117
Other income 550 9,050
----------- ---------- ----------
Total revenues 11,630 62,825 570,851
Cost of revenues 2,818 2,041 28,155
----------- ---------- ----------
Gross profit 8,812 60,784 542,696
----------- ---------- ----------
Costs and expenses
Research and development - - 2,558,041
Purchased technology - - 690,000
General and administrative 22,794 63,117 4,290,308
Cell culture operations - - 601,116
----------- ---------- ----------
Total costs and expenses 22,794 63,117 8,139,465
----------- ---------- ----------
Loss from operations (13,982) (2,333) (7,596,769)
----------- ---------- ----------
Other income (expense)
Interest, net (5,183) (8,435) 66,824
Litigation costs - - (99,242)
Offering costs - (1,500) (336,446)
Option compensation - - (219,375)
Other income (expense) 9,869 - (13,165)
Accelerated lease commitment cost - - (315,000)
Recognized loss for decline in value of investment - - (1,500,000)
Gain (loss) on sale of equipment (1) - 62,616
Income recognized on indemnified liabilities 242,276 242,276
Income recognized on settlements 79,770 - 373,376
----------- ---------- ----------
Other expense, net 326,731 (9,935) (1,738,137)
----------- ---------- ----------
Income (loss) before provision for income taxes and cumulative
effect of change in accounting principle 312,749 ( 12,268) (9,334,906)
Provision for income taxes - - 343,873
----------- ---------- ----------
Loss before cumulative effect of change in accounting principle 312,749 ( 12,268) (9,678,906)
Cumulative effect of change in accounting principle - - 463,440
----------- ---------- ----------
Net Income (loss) $ 312,749 $ (12,268) $(9,215,339)
=========== =========== ===========
Weighted average shares 9,925,082 9,551,242 6,416,880
=========== =========== ===========
Basic and diluted profit (loss) per share $ 0.03 $ (0.00) $ (1.44)
=========== =========== ===========
</TABLE>
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Deficit
Years Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock
------------------------- Development
Number Additional Stage Stock Total
of Capital Paid-in Accumulated Subscription Treasury Stockholders'
Issued Shares Amount Capital Deficit Receivable Stock Equity (Deficit)
------------- --------- ---------- ----------- ------------ -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 9,921,659 $ 99,216 $9,110,298 $(9,515,820) $(50,000) $(5,500) $(361,806)
Issuance of common stock for
Services 365,000 3,651 29,790 - - - 33,441
Net loss - - - (12,268) - - (12,268)
---------- --------- ---------- ----------- -------- ------- ---------
Balance, June 30, 1998 10,286,659 102,867 9,140,088 (9,528,088) (50,000) (5,500) (340,633)
Issuance of
treasury stock for
settlement of liabilities - - (5,500) - - 5,500 -
Cancellation of stock
subscription receivable (50,000) 50,000 -
Issuance of common stock
to minority interest holders 263,879 2,638 (2,638) - - - -
Issuance of common stock upon
exercise of common stock
options 397,611 3,976 4,098 - (8,074) - -
Issuance of common stock upon
exercise of options in
settlement of liabilities 1,049,589 10,496 26,021 - - - 36,517
Net income - - - 312,749 - - 312,749
---------- --------- ---------- ----------- -------- ------- ---------
Balance, June 30, 1998 11,997,738 $ 119,977 $9,112,069 $(9,215,339) $ (8,074) $ - $ 8,633
========== ========= ========== =========== ======== ======= =========
</TABLE>
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
Years Ended June 30, 1999 and 1998
the Cumulative Period From Inception to June 30, 1999
<TABLE>
<CAPTION>
Period From
For the Year Ended June 30, Inception to
1999 1998 June 30, 1999
---- ---- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ 312,749 $ (12,268) $ (9,215,339)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities
Depreciation and amortization 26,364 19,914 282,294
Cumulative effect of change in accounting principle - - (463,440)
Recognized loss on investment - - 1,500,000
Gain (loss) on sale of assets 1 - (38,703)
Loss on extinguishment of debt - - 42,000
Common stock issued in exchange for
Purchased technology - - 605,000
Services rendered - 33,441 128,453
Common stock options issued in exchange for services rendered - - 52,300
Amortization of unearned compensation - - 140,625
Repricing of A warrants - - 78,750
(Increase) decrease in
Accounts receivable 8,455 (356) -
Inventory 2,068 1,247 (16,366)
Prepaid expenses and other current assets - 180 360
Other receivables 745 (550) -
Other assets 300 399 -
Deferred tax assets - - 463,440
Increase (decrease) in
Accounts payable (111,695) (2,882) 72,771
Accrued expenses (77,954) (47,289) 23,468
Other current liabilities (1,549) (818) -
Deferred income - (20,000) -
Other liabilities (80,534) - 7,200
------------ ----------- -------------
Net cash provided (used) by operating activities 78,950 (28,982) (6,337,187)
------------ ----------- -------------
Cash flows from investing activities
Purchase of collateralized mortgage obligation - - (1,000,000)
Proceeds from collateralized mortgage obligation - - 1,000,000
Purchase of fixed assets - - (333,187)
Purchase of intangible assets - - (105,205)
Proceeds from sale of assets - - 189,742
------------ ----------- -------------
Net cash used by investing activities - - (248,650)
------------ ----------- -------------
Cash flows from financing activities
Advance from and amounts due to stockholders - - 594,385
Repayment of advances - - (159,975)
Notes payable (104,555) 15,025 -
Issuance of common stock 36,517 - 2,142,483
Treasury stock acquisition - - (10,000)
Re-capitalization - - 4,031,176
------------ ----------- -------------
Net cash provided (used) by financing activities (68,038) (15,025) 6,598,069
------------ ----------- -------------
Net increase (decrease) in cash 10,912 (13,957) 12,232
Cash, beginning of year 1,320 15,277 -
------------ ----------- -------------
Cash, end of year $ 12,232 $ 1,320 $ 12,232
============ =========== =============
</TABLE>
- - ----------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
Organization
Biorelease Corp. (the Company) and Biorelease Technologies, Inc. (Subsidiary)
are being presented as a development stage enterprise engaged in facilitating
the development, licensing, and marketing of biotech product lines.
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the parent, Biorelease Corp. and its
subsidiary, Biorelease Technologies, Inc., which is approximately 90%
owned by Biorelease Corp., are presented on a consolidated basis. All
inter-company balances and transactions have been eliminated in the
accompanying consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Future Operations
These consolidated financial statements have been presented on the basis
that the Company is a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As a development stage enterprise, the Company currently does
not have sufficient available funds to support its technology development
and related marketing efforts over any extended period of time. Because
the Company has limited working capital, there is substantial doubt about
its ability to continue as a going concern without additional capital and
attainment of profitable operations. On July 26, 1999 the Company signed
a definitive agreement under which Biorelease will merge with Polar
Molecular Corporation, a Utah corporation ("PMC"). (See Note 5)
Revenues
Revenues from product sales are recorded when shipped.
F-23
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
1. Summary of Significant Accounting Policies (Continued)
Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market.
Management has recently re-tested each batch of biotech product in
inventory and estimates the shelf life of its inventory to remain potent
through June 30, 2002. The shelf life of the product beyond June 30, 2002
will be evaluated at that time, with the potential for an obsolescence
write-down of inventory due to loss of biological activity.
Equipment
Equipment is stated at cost. Depreciation and amortization are provided
using an accelerated method over the estimated useful lives of five to
seven years. Repairs and maintenance are charged to expense when
incurred. Any gain or loss resulting from the disposal of equipment is
included in operations and the cost and related accumulated depreciation
are removed from the respective account balances.
Intangible Assets
Intangible assets consist of costs incurred to obtain and maintain
patents. During the fiscal year ending June 30, 1999 all remaining patent
costs were written off reflecting the expiration or abandonment of all
remaining patents.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years for differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
Income (Loss) Per Common Share
Income (loss) per common share is computed using the weighted-average
number of common shares outstanding during each period. For all net loss
fiscal years presented, common stock options are not included in the
Company's computation of diluted net loss per share, as the inclusion of
these shares would be anti-dilutive; therefore, diluted loss per share is
equal to basic loss per share.
F-24
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
1. Summary of Significant Accounting Policies (Concluded)
As of June 30, the net income (loss) per share was calculated as follows:
Period from
inception to
1999 1998 June 30, 1999
---- ----- -------------
Net income(loss) $ 317,749 $ (12,268) $ (9,215,339)
Shares 9,925,082 9,551,242 6,416,880
----------- --------- ---------
Per share amount $ 0.03 $ (0.00) $ (1.44)
=========== ========== ===========
2. Equipment
Equipment consisted of the following as of June 30:
1999 1998
---- ----
Equipment $80,201 $80,701
Less accumulated depreciation 75,146 69,730
------ ------
$ 5,055 $10,971
====== ======
Depreciation expense for the years ended June 30, 1999 and 1998 was
$5,915 and $8,016, respectively.
3. Intangible Assets
Intangible assets consisted of the following as of June 30:
1999 1998
---- ----
Patents $80,039 $80,039
Less accumulated amortization 80,039 59,590
------ ------
$ 0 $20,449
====== ======
F-25
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
4. Notes Payable (Also see Note 1 and Note 10)
Notes payable consisted of the following as of June 30:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Stockholders
Unsecured promissory notes, bearing interest at 9%,
due date December 31, 1995. These notes were forgiven in
exchange for and in exchange for an indemnity agreement
with a related party. See note 10. $ - $ 43,600
Unsecured non-interest-bearing notes, with payments of
$1,000 due monthly and $417 due quarterly. The Company
reached settlement on these notes (see Note 5). The
first note requires any amount still outstanding to be
paid December 1997. This note was paid in full February
1998. The second note is party to an indemnity agreement
with a related party. See Note 10. - 14,975
Promissory note, payments of interest only at 9%,
collateralized by Genesis preferred stock. The Company
has settled this note by allowing the note holder to
exercise options
for no cash. - 14,955
Other:
Unsecured promissory note, quarterly payments of interest only,
balance due July 1998. This note is party to an indemnity
agreement with a related party. See note 10. - 16,000
Unsecured, non-interest-bearing promissory note payable.
This note is party to an indemnity agreement with a related party.
See Note 10. - 27,500
---------- ----------
- 104,555
Less current portion - 73,600
---------- ----------
Notes payable, excluding current portion $ - $ 30,955
========== ==========
</TABLE>
F-26
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
5. Commitments and Contingencies
On July 26, 1999 the Company signed a definitive agreement under which
Biorelease will merge with Polar Molecular Corporation, a Utah
corporation ("PMC"). The proposed merger will be accounted for as a
reverse merger, using the purchase method of accounting. As a result of
the proposed merger, if completed, the name of Biorelease will be changed
to "Polar Molecular Corporation" and the current management team of
Biorelease will resign and be replaced by PMC's management team. The
merger agreement provides, among other things, that Biorelease is to
reverse split its outstanding common shares on a one-for-25 basis and is
to spin-off or otherwise dispose of its wholly-owned subsidiary (and only
operating company) Biorelease Technologies, Inc. To acquire PMC,
Biorelease has agreed to issue to the PMC shareholders 13,620,000
post-reverse split shares. After the reverse stock split and upon the
issuance of common shares to the shareholders of PMC, Biorelease will
have approximately 14,880,000 shares of common stock issued and
outstanding, of which approximately 91.5% will be owned by the current
shareholders of PMC and approximately 8.5% will be owned by the then
current shareholders of Biorelease. The completion of the proposed
transaction is subject to, among other things, PMC filing a Form S-4
registration statement with the Securities and Exchange Commission,
approval by the shareholders of both companies, the completion of a
private offering pursuant to which PMC is to raise at least $2,000,000
before closing, and other matters.
Since July 1, 1997, the Company has had no leased premises. Office rental
space has been provided by a related party without charge (see Note 10).
During 1994, a note holder had brought suit against the Company for
repayment of $40,000 of principal and costs of collection. Under the
terms of the note, at the Company's option, the note could be satisfied
by the note holder receiving Company stock of equivalent value. The note
holder is a stockholder of the Company. A court-approved settlement was
reached during 1995 in the amount of $43,475. The Company agreed to pay a
monthly amount of $1,000 through December 1996 where upon the remaining
balance is due. Interest on late payments is accrued at the rate of 10%.
In February 1998, the Company paid $8,000 and agreed to issue 20,000
shares of the Company's common stock in final settlement of this
obligation. The Company has accrued $1,000 for the remaining obligation
under this settlement, which is accounted for as common stock in transit
at June 30, 1999.
The Company does not carry product liability insurance.
F-27
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
6. Income Taxes
The Company has not filed federal or state tax returns for the years
ended December 31, 1993, 1994, 1995, 1996, 1997 and 1998. There will be
no federal tax liability for the years then ended. $4,700 of state
business tax liabilities recorded as of June 30, 1998 were indemnified as
part of the related party agreement entered into as of June 30, 1999.
(See Note 10)
For income tax filing purposes, the Company recognizes revenue and
expenses on a cash basis and its fiscal year-end is December 31.
The net current and long-term deferred taxes consisted of the following
components as of June 30:
<TABLE>
<CAPTION>
1999 Tax Effect
-----------------------------------------------------------------------------------------
Asset Liability
--------------------------------- -----------------------------
Item Total Current Long-Term Current Long-Term
---- ----- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Accrual to cash adjustment $ (27,179) $ 1,268 $ - $ (28,447) $ -
Net operating loss deduction 1,113,621 - 1,113,621 - -
----------------- ------------- --------------- ----------- -------------
086,422 1,268 13,621 -
Valuation allowance (1,086,442) (1,268) (1,113,621) (28,447) -
----------------- ------------- --------------- ----------- -------------
$ - $ - $ - $ - $ -
================= ============= =============== =========== =============
</TABLE>
<TABLE>
<CAPTION>
1998 Tax Effect
-----------------------------------------------------------------------------------------
Asset Liability
--------------------------------- -----------------------------
Item Total Current Long-Term Current Long-Term
---- ----- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Accrual to cash adjustment $ 76,185 $ 79,738 $ - $ (3,553) $ -
Net operating loss deduction 1,047,515 - 1,047,515 - -
----------------- ------------- --------------- ----------- -------------
1,123,700 79,738 1,047,515 (3,553) -
Valuation allowance (1,123,700) (76,185) (1,047,515) - -
----------------- ------------- --------------- ----------- -------------
$ - $ 3,553 $ - $ (3,553) $ -
================= ============= =============== =========== =============
</TABLE>
F-28
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
6. Income Taxes (Concluded)
Valuation
Allowance
----------
Balance, June 30, 1997 $1,301,284
Net decrease (177,584)
---------
Balance June 30, 1998 $1,123,700
Net decrease (32,258)
---------
Balance June 30, 1999 $1,086,442
=========
A valuation allowance equivalent to 100% of the deferred tax asset has
been established since it is more probable than not that the Company will
not be able to recognize a tax benefit for the asset.
7. Equity
Effective June 30, 1992, the Company acquired substantially all of the
outstanding common and preferred stock of FLS Acquisition Corp. (FLSA) in
exchange for common stock of OIA. This reorganization was accounted for
as a reverse acquisition of OIA by FLSA under the purchase method of
accounting, as the shareholders of FLSA controlled the consolidated
entity immediately following the reorganization. Subsequent to the
transaction, the Company changed its name to Biorelease Corp. and FLSA
changed its name to Biorelease Technologies, Inc.
The terms of the reorganization agreement between the Company and the
Subsidiary called for the issuance of 2,845,436 shares of OIA, Inc.
common stock in exchange for 5,014,780 shares of FLSA common stock,
representing all of FLSA common stock issued and outstanding at the date
of the reorganization. Currently, all but 433,105 shares of FLSA have
been acquired. A certificate for 263,879 shares reflecting the Company's
remaining obligations under the reorganization agreement has been issued
to a trustee for the benefit of the minority Subsidiary shareholders. The
reorganization agreement also called for the issuance of up to 1,022,130
additional shares of the Company's common stock, subject to the
achievement of certain operating results in future years. The Company did
not meet the requirements. No accounting recognition has been given to
the minority ownership interest in the subsidiary because the subsidiary
is a deficit corporation and the minority shareholders have no obligation
to fund their share of such deficit.
Effective September 1, 1992, the Board of Directors adopted the 1992
Directors' Stock Option Plan (Directors' Plan) and the 1992 Stock Option
Plan (Option Plan). Under the Directors' Plan, a maximum number of
100,000 shares are reserved for option grants. The option price per share
F-29
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
7. Equity (Continued)
will be its market price at the date of grant, provided however, that at
no time will the option price be less than $6.00 per share. Options
granted under this Plan vest immediately and expire 10 years from the
date of grant. The Plan was modified by a proxy vote during 1994. The
maximum number of shares pursuant to this Plan has been increased to
250,000 shares, and the requirement that the minimum exercise price be
$6.00 per share has been removed.
Under the Option Plan, a maximum number of 500,000 shares are reserved
for option grants. The option price per share will be its market value at
the date of grant, provided however, that at no time will the option
price be less than $6.00 per share. Vesting and expiration dates will
vary based upon individual agreement with the option holder. The Plan was
modified by a proxy vote during 1994. The maximum number of shares
pursuant to this Plan has been increased to 10% of the issued and
outstanding shares of the Company, not to exceed 1,000,000 shares, and
the requirement that the minimum exercise price be $6.00 per share has
been removed. Under the Plan, an incentive stock option plan benefiting
its President provides for an option to purchase up to 200,000 shares of
common stock at $1.40 exercise price if certain operational criteria are
met.
A summary of the Company's stock option plans as of June 30, 1999 and
1998 and changes during the year are presented below:
<TABLE>
<CAPTION>
Options Granted to
Director Plan Service Providers
-------------------- ---------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Options outstanding, June 30, 1997 157,500 2.75 3,244,320 0.69
Options outstanding, June 30, 1998 157,500 2.75 3,244,320 0.69
Options Granted 40,000 0.03 -
Options exercised (80,000) (1,347,200)
Options expired - (357,500)
------- ---------
Options outstanding, June 30, 1999 117,500 2.75 1,539,620 0.69
======= ==== ========== ====
Currently exercisable 117,500 2.75 1,539,620 0.69
======= ==== ========== ====
</TABLE>
The range of exercise prices is $.06 to $7.50 as of June 30, 1999 and
1998, respectively.
F-30
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
7. Equity (Concluded)
The weighted average fair value of the options granted during the years
ended June 30, 1999 and 1998 is presented below:
1999 1998
---- ----
Director Plan $0.03 Non Granted
Option Plan Non Granted Non Granted
Options granted to
service providers Non Granted Non Granted
The Company applies APB Opinion 25 and related interpretations in
accounting for certain options granted. Accordingly, no compensation cost
has been recognized for those options. Had compensation cost for the
Company plans been determined based on the fair value at the grant dates,
consistent with the method of FASB Statement 123, the Company's net
income or loss would not have been affected for the years ended June 30,
1999 and 1998, and there would have been no impact on the profit or loss
per share for those years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model using the following weighted-average
assumptions:
1999 1998
---- ----
Weighted risk-free interest rate N/A N/A
Weighted expected life N/A N/A
Weighted expected volatility N/A N/A
8. Investment
The Company acquired 150,000 shares of 6% cumulative, convertible
preferred stock of Genesis Farms, Inc. (Genesis) on March 31, 1994 in
consideration for issuing 1,500,000 shares of the Company's common stock.
The preferred stock can be converted into common stock at a ratio of 10
shares of common stock for each share of the preferred. On March 31,
1994, the Company's stock had a fair market value of $1. In accordance
with generally accepted accounting principles (the cost method of
accounting for non-marketable investments), the Company recorded the
investment in Genesis at $1,500,000. Management believes the value of
Genesis stock has been permanently impaired and has reduced the carried
value of its investment in the Genesis preferred stock to $-0- as of June
30, 1999 and 1998.
F-31
BIORELEASE CORP. AND SUBSIDIARY D/B/A BIORELEASE
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
9. Cash Flow Information
<TABLE>
<CAPTION>
For the Year Period From
Ended June 30, Inception to
----------------------------- June 30,
1999 1998 1999
---- ---- --------------
<S> <C> <C> <C>
Cash paid for interest $ 0 $ 525 $ 7,752
Non-cash investing and financing activities were as follows:
Liabilities repaid through issuance
of common stock 36,517 33,441 652,731
Issuance of common stock for
subscription receivable - - 50,000
Non-marketable security acquired
through the issuance of common
stock - - 1,500,000
</TABLE>
10. Related Party Transactions
On October 4, 1996, R. Bruce Reeves resigned as a member of the Board of
Directors, President, and Chief Executive Officer of the Company.
Effective April 1, 1996, the Company engaged a consulting firm,
controlled by a Reeves' family member, to perform the executive duties of
the Company. In fiscal year end June 30, 1999, the Company accrued $7,200
in contractual fees for these services as compared to fiscal year ended
June 30, 1998, wherein the Company paid $1,500 for these services. In
February 1998, the Company's Board of Directors appointed Mr. Reeves as
acting President to manage ongoing business activities of the Company.
As of June 30, 1998, the Company was indebted $87,734 to this related
party. The indebtedness bore no interest and had been deferred for a
period of three years. The Company had incurred $16,827 of additional
accrued expenses payable to the related party as of June 30, 1998. As of
June 30, 1999 the Company and this related party reached agreement under
which the related party, on behalf of itself and other creditors of the
Company, received 725,000 shares of the Company's stock, the Genesis
preferred shares held by the Company, all rights to recover shares
previously issued to Genesis Capital in the March 31, 1994 exchange
transaction along with an option for one year to acquire up to 60% of the
Subsidiary at the then book value in exchange for (i) forgiving $67,918
in debt owed by the Company and the Subsidiary to the related party and
other creditors, (ii) indemnification by the related party for an
additional $242,276 in liabilities plus (iii) rights to offset exercise
price against outstanding indebtedness for certain outstanding options.
11. Disclosure About Fair Value of Financial Instruments
The Company's financial instruments consist of cash, short-term trade
receivables and payables, and long-term debt. The carrying value of all
instruments approximates their fair value.
F-32
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
BIORELEASE CORPORATION,
AND
POLAR MOLECULAR CORPORATION.
Dated as of July 26, 1999
A-1
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS.......................................................6
1.1 Affiliate..............................................6
1.2 Biorelease Common Stock................................6
1.3 Biorelease SEC Reports.................................2
1.4 Certificate of Merger..................................2
1.5 Closing................................................2
1.6 Closing Date...........................................2
1.7 Code...................................................2
1.8 Delaware Law...........................................2
1.9 Disclosure Schedule....................................2
1.10 Effective Time.........................................2
1.11 Exchange Act...........................................2
1.12 Exchange Agent.........................................2
1.13 Exchange Ratio.........................................2
1.14 Form S-4 Registration Statement........................3
1.15 GAAP...................................................3
1.16 Governmental Entity....................................3
1.17 Knowledge..............................................3
1.19 Material Adverse Effect................................3
1.19 Merger.................................................3
1.20 OTCBB..................................................3
1.21 Person.................................................3
1.22 PMC Affiliate Agreements...............................3
1.23 PMC Common Stock.......................................3
1.24 PMC Stock Option Plans.................................3
1.25 PMC Preferred Stock....................................3
1.26 Proxy Statement/Prospectus.............................3
1.27 SEC....................................................4
1.28 Securities Act.........................................4
1.29 Stockholders'Meeting...................................4
1.30 Surviving Corporation..................................4
1.31 Taxes..................................................4
1.32 Utah Law...............................................4
ARTICLE 2 THE MERGER.......................................................4
2.1 The Merger.............................................4
2.2 Effective Time; Closing................................4
2.3 Effect of the Merger...................................4
2.4 Articles of Incorporation; Bylaws......................4
2.5 Directors and Officers.................................5
2.6 Effect on Capital Stock................................5
2.7 Surrender of Certificates..............................7
2.8 No Further Ownership Rights in PMC Common Stock........8
2.9 Lost, Stolen or Destroyed Certificates.................8
2.10 Tax and Accounting Consequences........................9
A-2
2.11 Taking of Necessary Action; Further Action.............9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PMC.............................9
3.1 Organization and Qualification; Subsidiaries...........9
3.2 Articles of Incorporation And Bylaws...................9
3.3 Capitalization.........................................9
3.4 Authority Relative to This Agreement..................10
3.5 No Conflict; Required Filings And Consents............10
3.6 Compliance; Permits...................................11
3.7 Financial Statements..................................11
3.8 No Undisclosed Liabilities............................12
3.9 Absence of Certain Changes or Events..................12
3.10 Absence of Litigation.................................12
3.11 Employee Benefit Plans................................13
3.12 Labor Matters.........................................13
3.13 Form S-4 Registration Statement; Proxy Statement......13
3.14 Restrictions on Business Activities...................13
3.15 Title to Property.....................................13
3.16 Taxes.................................................14
3.17 Environmental Matters.................................14
3.18 Intangible Assets.....................................15
3.19 Agreements, Contracts and Commitments.................15
3.20 Insurance.............................................16
3.21 Directors and Officers................................16
3.22 Shareholder List......................................16
3.23 Transfer Agent........................................16
3.24 Stock Transfer Records................................16
3.25 Corporate Record Books................................16
3.26 Related Party Transactions............................16
3.27 Lack of Disputes......................................17
3.28 Board Approval........................................17
3.29 Vote Required.........................................17
3.30 Disclosures...........................................17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BIORELEASE.....................17
4.1 Organization and Qualification; Subsidiaries..........17
4.2 Certificate of Incorporation and Bylaws...............18
4.3 Capitalization........................................18
4.4 Authority Relative to This Agreement..................18
4.5 No Conflict; Required Filings and Consents............19
4.6 Compliance; Permits...................................19
4.7 SEC Filings; Financial Statements.....................20
4.8 No Undisclosed Liabilities............................20
4.9 Absence of Certain Changes or Events..................21
4.10 Absence of Litigation.................................21
4.11 Employee Benefit Plans................................21
4.12 Labor Matters.........................................22
4.13 Form S-4 Registration Statement; Proxy Statement......22
A-3
4.14 Restrictions on Business Activities...................22
4.15 Title to Property.....................................22
4.16 Taxes.................................................22
4.17 Environmental Matters.................................23
4.18 Intangible Assets.....................................23
4.19 Agreements, Contracts and Commitments.................24
4.20 Insurance.............................................25
4.21 Directors, Officers and Affiliates....................25
4.22 Prior Sales...........................................25
4.23 Shareholder List......................................25
4.24 Transfer Agent and Market Makers......................25
4.25 Stock Transfer Records................................25
4.26 Corporate Record Books................................25
4.27 Related Party Transactions............................25
4.28 Lack of Disputes......................................26
4.29 Board Approval........................................26
4.30 Vote Required.........................................26
4.31 Disclosures...........................................26
ARTICLE 5 CONDUCT PRIOR TO THE EFFECTIVE TIME.............................26
5.1 Conduct of Business By PMC............................26
5.2 Conduct of Business by Biorelease.....................28
ARTICLE 6 ADDITIONAL AGREEMENTS...........................................30
6.1 Proxy Statement/Prospectus; Form S-4 Registration
Statement; Other Filings; Board Recommendations.....30
6.2 Meeting of PMC Stockholders...........................30
6.2 Meeting of Biorelease Stockholders....................31
6.4 Confidentiality; Access to Information................32
6.5 Public Disclosure.....................................33
6.6 Reasonable Efforts; Notification......................33
6.7 Third Party Consents..................................34
6.8 Stock Options and Employee Benefits...................34
6.9 Form S-8..............................................35
6.10 OTCBB and NASDAQ Listings.............................35
6.11 PMC Affiliate Agreement...............................35
6.12 Comfort Letter of Biorelease's Auditors...............35
6.13 Comfort Letter of PMC's Auditors......................35
6.14 Biorelease Audit; Accountants'Consent.................36
6.15 PMC Accountants'Consent...............................36
ARTICLE 7 CONDITIONS TO THE MERGER........................................36
7.1 Conditions to Obligations of Each Party to Effect
the Merger..........................................36
7.2 Additional Conditions to Obligations of PMC...........37
7.3 Additional Conditions to the Obligations
of Biorelease.......................................38
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER................................38
8.1 Termination...........................................38
8.2 Notice of Termination; Effect of Termination..........40
A-4
8.3 Fees and Expenses.....................................40
8.4 Amendment.............................................41
8.5 Extension; Waiver.....................................41
ARTICLE 9 GENERAL PROVISIONS..............................................41
9.1 Non-Survival of Representations and Warranties........41
9.2 Notices...............................................42
9.3 Interpretation........................................42
9.4 Counterparts..........................................43
9.5 Entire Agreement; Third Party Beneficiaries...........43
9.6 Severability..........................................43
9.7 Other Remedies; Specific Performance..................43
9.8 Governing Law.........................................43
9.9 Rules of Construction.................................44
9.10 Assignment............................................44
9.11 Waiver of Jury Trial..................................44
9.12 Amendment of Agreement................................44
INDEX OF EXHIBITS
Exhibit A Form of Affiliate Agreement
A-5
AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into
as of July 26, 1999, among BIORELEASE CORPORATION, a Delaware corporation
("Biorelease") and POLAR MOLECULAR CORPORATION., a Utah corporation ("PMC").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement
and in accordance with the Delaware General Corporation Law ("Delaware Law")
and the Utah Business Corporation Act ("Utah Law"), Biorelease and PMC intend
to enter into a business combination transaction.
B. The Board of Directors of PMC and Biorelease have each (i)
determined that the Merger (as defined in Article 1) is consistent with and
in furtherance of the long-term business strategy of their company and fair
to, and in the best interests of, their company and its stockholders, (ii)
approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) determined to recommend that their stockholders
adopt and approve this Agreement and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a
condition and inducement to Biorelease's willingness to enter into this
Agreement, certain affiliates of PMC are entering into Affiliate Agreements
in substantially the form attached hereto as Exhibit A (the "PMC Affiliate
Agreements").
D. The parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
The terms defined in this Article shall have the following
respective meanings for all purposes of this Agreement:
1.1 "Affiliate" means, with respect to any Person, any family
member and any other Person controlling, controlled by or under common
control with such Person.
1.2 "Biorelease Common Stock" refers to the shares of common stock
of Biorelease to be received by the shareholders of PMC in exchange for their
shares of PMC Common Stock. Unless the context otherwise requires, all
references to a number of shares of Biorelease Common
A-6
Stock shall refer to the number of shares after the reverse stock split to be
conducted pursuant to Section 2.4(b).
1.3 "Biorelease SEC Reports" means Biorelease's annual report on
Form 10-KSB for the year ended June 30, 1999 and all proxy statements,
Quarterly Reports on Form 10-QSB, Current Reports on Form 8-K and all
amendments thereto filed subsequent to the filing of that Form 10-KSB.
1.4 "Certificate of Merger" shall have the meaning set forth in
Section 2.2.
1.5 "Closing" means the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of this
Agreement. The Closing shall be held on the date and the location specified
in Section 2.2.
1.6 "Closing Date" means the date on which the Closing actually
occurs pursuant to Section 2.2.
1.7 "Code" refers to the Internal Revenue Code of 1986, as
amended.
1.8 "Delaware Law" refers to the Delaware General Corporation Law.
1.9 "Disclosure Schedule" means the disclosure schedule executed
by each party (referencing the appropriate section of paragraph numbers) that
are delivered to the other parties on or prior to the date of this Agreement.
1.10 "Effective Time" shall have the mean as set forth in Section
2.2.
1.11 "Exchange Act" refers to the Securities Exchange Act of 1934,
as amended.
1.12 "Exchange Agent" refers to the bank, trust company or
transfer agent selected pursuant to Section 2.7(a) to handle the exchange of
the certificates for the PMC Common Stock for the shares of Biorelease Common
Stock.
1.13 "Exchange Ratio" is used to determine the number of shares of
Biorelease Common Stock to be issued in exchange for each share of PMC Common
Stock. The Exchange ratio is equal to the number of shares of PMC Common
Stock outstanding immediately prior to the Effective Time divided by
13,620,000. For purposes of determine the number of shares of PMC Common
Stock that are outstanding, each share that may be issued upon the exercise
of stock options or warrants with an exercise price of less than $.20 per
share will be deemed to be issued and outstanding. In the event the number of
shares of Biorelease Common Stock outstanding immediately prior to the
Effective Time, after including all shares then issuable upon the exercise of
conversion rights, options, warrants or other rights that would require
Biorelease to issue additional shares (other than to the Shareholders of PMC
pursuant to the Merger), and after taking into account the 1-for-25 reverse
split to be conducted pursuant to Section 2.4(b), would exceed 1,326,194
shares, then appropriate adjustments will be made in the Exchange Ratio to
A-7
maintain the relative percentage of Biorelease Common Stock to be issued in
exchange for the PMC Common Stock.
1.14 "Form S-4 Registration Statement" refers to the registration
statement on Form S-4 to be filed with the SEC by Biorelease in connection
with the issuance of the Biorelease Common Stock in or as a result of the
Merger.
1.15 "GAAP" means generally accepted accounting principles as in
effect in the United States on December 31, 1998.
1.16 "Governmental Entity" refers to any court, administrative
agency, commission, governmental or regulatory authority, domestic or
foreign.
1.17 "Knowledge" means, with respect to a party hereto, with
respect to any matter in question, that any of the Chairman, Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, General Counsel or
Controller of such party, has actual knowledge of such matter.
1.18 "Material Adverse Effect" when used in connection with an
entity means any change, event, violation, inaccuracy, circumstance or effect
that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition or results of operations of such
entity and its subsidiaries taken as a whole.
1.19 "Merger" refers to the merger of PMC with and into Biorelease
of which Biorelease shall continue as the surviving corporation.
1.20 "OTCBB" refers to the OTC Bulletin Board that is operated by
the National Association of Securities Dealers but is separate from the
NASDAQ stock market.
1.21 "Person" shall mean any individual, corporation (including
any non-profit corporation), general partnership, limited partnership,
limited liability partnership, joint venture, estate, trust, company
(including any limited liability company or joint stock company), firm or
other enterprise, association, organization, entity or Governmental Entity.
1.22 "PMC Affiliate Agreements" refers to the agreements to be
executed by certain affiliates of PMC in the form attached hereto as Exhibit
A.
1.23 "PMC Common Stock" refers to the common stock of PMC. The PMC
Common Stock will be exchanged for Biorelease Common Stock as a result of the
Merger.
1.24 "PMC Stock Option Plan" shall have the meaning set forth in
Section 2.6(c).
1.25 "PMC Preferred Stock" shall have the meaning set forth in
Section 2.6(a).
1.26 "Proxy Statement/Prospectus" refers to the proxy
statement/prospectus that will be part of the Form S-4 Registration
Statement.
A-8
1.27 "SEC" means the United States Securities and Exchange
Commission.
1.28 "Securities Act" means the Securities Act of 1933, as
amended.
1.29 "Stockholders' Meeting" refers to the meetings of
stockholders of PMC and Biorelease to be held pursuant to Sections 6.2 and
6.3.
1.30 "Surviving Corporation" shall refer to Biorelease, the
corporation that will survive the merger between PMC and Biorelease.
1.31 "Taxes" shall have the meaning set forth in Section 3.16.
1.32 "Utah Law" shall mean the Utah Business Corporation Act.
ARTICLE 2
THE MERGER
2.1 The Merger. At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the applicable provisions of
Delaware Law and Utah Law, PMC shall be merged with and into Biorelease (the
"Merger"), the separate corporate existence of PMC shall cease and Biorelease
shall continue as the surviving corporation. Biorelease as the surviving
corporation after the Merger is hereinafter sometimes referred to as the
"Surviving Corporation."
2.2 Effective Time; Closing. Subject to the provisions of this
Agreement, the parties hereto shall cause the Merger to be consummated by
filing a Certificate of Merger with the Secretary of State of the State of
Delaware and the Secretary of State of the State of Utah in accordance with
the relevant provisions of Delaware Law and Utah Law (the "Certificate of
Merger") as soon as practicable on or after the Closing Date (the time of
such filing, or such later time as may be agreed in writing by PMC and
Biorelease and specified in the Certificate of Merger, being the "Effective
Time"). The closing of the Merger (the "Closing") shall take place at the
offices of Berry Moorman P.C., at a time and date to be specified by the
parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article 7, or at such
other time, date and location as the parties hereto agree in writing but no
later than 150 days after the SEC declares the Form S-4 Registration
Statement effective (the "Closing Date").
2.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions
of Delaware Law and Utah Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of PMC and Biorelease shall vest in
the Surviving Corporation, and all debts, liabilities and duties of PMC and
Biorelease shall become the debts, liabilities and duties of the Surviving
Corporation.
2.4 Articles of Incorporation; Bylaws.
A-9
(a) At the Effective Time, the Certificate of
Incorporation of Biorelease, as in effect immediately prior to the
Effective Time and as amended pursuant to Subsection (b) below,
shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by law and such
Certificate of Incorporation.
(b) At or before the Effective Time, the Certificate of
Incorporation of Biorelease shall be amended so that: (i) the name
of Biorelease shall be changed to "Polar Molecular Corporation";
(ii) Biorelease will conduct a one-for-twenty-five (1-for-25)
reverse split of its common stock; and (iii) 10,000,000 shares of
preferred stock will be authorized.
(c) The Bylaws of Biorelease, as in effect immediately
prior to the Effective Time, shall be, at the Effective Time, the
Bylaws of the Surviving Corporation until thereafter amended.
2.5 Directors and Officers. The directors of the Surviving
Corporation shall be the directors of PMC immediately prior to the Effective
Time, until their respective successors are duly elected or appointed and
qualified. The officers of the Surviving Corporation shall be the officers of
PMC immediately prior to the Effective Time, until their respective
successors are duly appointed. At the Biorelease Stockholders' Meeting, the
shareholders shall elect nominees approved by PMC to the Biorelease Board of
Directors. Those directors shall then appoint officers of Biorelease that
have been designated by PMC.
2.6 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of Biorelease, PMC or the
holders of any of the securities of PMC:
(a) Conversion of PMC Common and Preferred Stock Each
share of Common Stock, $0.001 par value per share, of PMC (the
"PMC Common Stock") issued and outstanding immediately prior to
the Effective Time, other than any shares of PMC Common Stock to
be canceled pursuant to Section 2.6(b), will be canceled and
extinguished and automatically converted (subject to Sections
2.6(e) and (f)) into the right to receive a number of shares of
Biorelease Common Stock equal to the Exchange Ratio. The
Biorelease Common Stock will be issued upon surrender of the
certificate representing such share of PMC Common Stock in the
manner provided in Section 2.7 (or in the case of a lost, stolen
or destroyed certificate, upon delivery of an affidavit (and bond,
if required) in the manner provided in Section 2.9). Each share of
Preferred Stock of PMC (the "PMC Preferred Stock") that is issued
and outstanding immediately prior to the Effective Time will be
canceled and extinguished and automatically converted into one
share of preferred stock of Biorelease that will have the same
terms and conditions as the PMC Preferred Stock. Prior to the
issuance of any shares of PMC Preferred Stock, the Boards of
Directors of PMC and Biorelease shall approve the form of the
provisions of the Articles of Incorporation of PMC and the
Certificate of Incorporation of Biorelease that will set forth the
terms and conditions of those shares of PMC Preferred Stock and
the preferred stock of Biorelease into which those shares will be
converted.
A-10
(b) Cancellation of Biorelease-Owned Stock. Each share
of PMC Common Stock held by PMC or owned by Biorelease or any
direct or indirect wholly-owned subsidiary of PMC or of Biorelease
immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Stock Options and Warrants. At the Effective Time,
all options and warrants to purchase PMC Common Stock then
outstanding (the "PMC Stock Options") shall be assumed by
Biorelease. When they become assumed by Biorelease, (1) each PMC
Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for the number of whole shares of
Biorelease Common Stock equal to the product of the number of
shares of PMC Common Stock that were issuable upon exercise of
such PMC Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded to the nearest whole
number of shares of Biorelease Common Stock and (2) the per share
exercise price for the shares of Biorelease Common Stock issuable
upon exercise of such assumed PMC Stock Option will be equal to
the quotient determined by dividing the exercise price per share
of PMC Common Stock at which such PMC Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent. Pursuant to Section 1.13,
all PMC Stock Options with an exercise price of less than $.20 per
share of PMC Common Stock will be deemed to be outstanding for
purposes of computing the Exchange Ratio.
(d) Intentionally omitted.
(e) Capital Stock of Biorelease. Each share of
Biorelease Common Stock issued and outstanding immediately prior
to the Effective Time shall, except for the reverse stock split to
be approved pursuant to Section 2.4(b), remain unchanged as a
result of the Merger.
(f) Adjustments to Exchange Ratio. The Exchange Ratio
shall be adjusted to reflect appropriately the effect of any stock
split, reverse stock split, stock dividend (including any dividend
or distribution of securities convertible into Biorelease Common
Stock or PMC Common Stock), reorganization, recapitalization,
reclassification or other like change with respect to Biorelease
Common Stock or PMC Common Stock occurring on or after the date
hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of
Biorelease Common Stock will be issued by virtue of the Merger,
but in lieu thereof each holder of shares of PMC Common Stock who
would otherwise be entitled to a fraction of a share of Biorelease
Common Stock (after aggregating all fractional shares of
Biorelease Common Stock that otherwise would be received by such
holder) shall receive from Biorelease a number of shares rounded
to the nearest whole share (i.e., fractions of less than .5 will
be rounded down and fractions of .5 or more will be rounded up).
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2.7 Surrender of Certificates.
(a) Exchange Agent. PMC shall select a bank, trust
company or transfer agent reasonably acceptable to Biorelease to
act as the exchange agent (the "Exchange Agent") for the Common
Stock in the Merger. The conversion of the PMC Preferred Stock
into shares of Biorelease Preferred Stock will be performed by the
Surviving Corporation.
(b) Biorelease to Provide Common Stock. Promptly after
the Effective Time (but in no event later than three (3) business
days thereafter), Biorelease shall make available to the Exchange
Agent for exchange in accordance with this Article 2, the shares
of Biorelease Common Stock issuable pursuant to Section 2.6 in
exchange for outstanding shares of PMC Common Stock and cash in an
amount sufficient for payment of any dividends or distributions to
which holders of shares of PMC Common Stock may be entitled
pursuant to Section 2.7(d).
(c) Exchange Procedures. Promptly after the Effective
Time (but in no event later than five (5) business days
thereafter), Biorelease shall cause the Exchange Agent to mail to
each holder of record (as of the Effective Time) of a certificate
or certificates (the "Certificates"), which immediately prior to
the Effective Time represented outstanding shares of PMC Common
Stock whose shares were converted into shares of Biorelease Common
Stock pursuant to Section 2.6 and any dividends or other
distributions pursuant to Section 2.7(d), (i) a letter of
transmittal in customary form (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall contain such other provisions as Biorelease may
reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates
representing shares of Biorelease Common Stock and any dividends
or other distributions pursuant to Section 2.7(d). Upon surrender
of Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Biorelease, together
with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders
of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of
Biorelease Common Stock into which their shares of PMC Common
Stock were converted at the Effective Time and any dividends or
distributions payable pursuant to Section 2.7(d), and the
Certificates so surrendered shall forthwith be canceled. Until so
surrendered, outstanding Certificates will be deemed from and
after the Effective Time, for all corporate purposes, subject to
Section 2.7(d) as to the payment of dividends, to evidence only
the ownership of the number of full shares of Biorelease Common
Stock into which such shares of PMC Common Stock shall have been
so converted and the right to receive an amount in cash of any
dividends or distributions payable pursuant to Section 2.7(d).
(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date
of this Agreement with respect to Biorelease Common Stock with a
record date after the Effective Time will be paid to the holders
of any unsurrendered Certificates with respect to the shares of
Biorelease Common Stock represented thereby until the holders of
record of such Certificates shall surrender
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such Certificates. Subject to applicable law, following surrender
of any such Certificates, the Exchange Agent shall deliver to the
record holders thereof, without interest, certificates
representing whole shares of Biorelease Common Stock issued in
exchange therefor along with payment of the amount of any such
dividends or other distributions with a record date after the
Effective Time payable with respect to such whole shares of
Biorelease Common Stock.
(e) Transfers of Ownership. If certificates representing
shares of Biorelease Common Stock are to be issued in a name other
than that in which the Certificates surrendered in exchange
therefor are registered, it will be a condition of the issuance
thereof that the Certificates so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Biorelease or
any agent designated by it any transfer or other taxes required by
reason of the issuance of certificates representing shares of
Biorelease Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established
to the satisfaction of Biorelease or any agent designated by it
that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the
contrary in this Section 2.7, neither the Exchange Agent,
Biorelease, the Surviving Corporation nor any party hereto shall
be liable to a holder of shares of Biorelease Common Stock or PMC
Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar
law.
2.8 No Further Ownership Rights in PMC Common Stock. All shares of
Biorelease Common Stock issued in accordance with the terms hereof (including
any cash paid in respect thereof pursuant to Section 2.7(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such
shares of PMC Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of PMC Common
Stock which were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided
in this Article 2.
2.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Biorelease Common Stock into which the shares of
PMC Common Stock represented by such Certificates were converted pursuant to
Section 2.6 and cash for any dividends or distributions payable pursuant to
Section 2.7(d); PROVIDED, HOWEVER, that Biorelease may, in its discretion and
as a condition precedent to the issuance of such certificates representing
shares of Biorelease Common Stock, cash and other distributions, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in
such sum as it may reasonably direct as indemnity against any claim that may
be made against Biorelease, the Surviving Corporation or the Exchange Agent
with respect to the Certificates alleged to have been lost, stolen or
destroyed.
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2.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g)
and 1.368-3(a) of the United States Income Tax Regulations.
(b) It is intended by the parties hereto that the Merger
shall be treated as a purchase for accounting purposes.
2.11 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of PMC and Biorelease, the officers
and directors of PMC and Biorelease will take all such lawful and necessary
action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PMC
PMC represents and warrants to Biorelease, subject to such
exceptions as are specifically disclosed in the PMC Disclosure Schedule
(referencing the appropriate section and paragraph numbers) delivered by PMC
to Biorelease on or prior to the date of this Agreement as follows:
3.1 Organization and Qualification; Subsidiaries. PMC is a
corporation duly organized, validly existing and in good standing under the
laws of Utah and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as
it is now being conducted. PMC is in possession of all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to have such Approvals
would not, individually or in the aggregate, have a Material Adverse Effect
on PMC. PMC is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect
on PMC. PMC does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for,
any equity or similar interest in, any corporation, partnership, joint
venture or other business, association or entity.
3.2 Articles of Incorporation and Bylaws. PMC has previously
furnished to Biorelease a complete and correct copy of its Articles of
Incorporation and Bylaws as amended to date. Such Articles of Incorporation
and Bylaws are in full force and effect. PMC is not in violation of any of
the provisions of its Articles of Incorporation or Bylaws.
3.3 Capitalization. The authorized capital stock of PMC consists
of 150,000,000 shares of PMC Common Stock, par value $0.001 per share, and
10,000,000 shares of Preferred
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Stock ("PMC Preferred Stock"), par value $.001 per share. Section 3.3 of the
PMC Disclosure Schedule sets forth a list of the shares that are issued and
all outstanding options and warrants. As of the date hereof, no shares of PMC
Preferred Stock were issued or outstanding. Except as set forth in the PMC
Disclosure Schedule, no change in such capitalization has occurred between
June 30, 1999 and the date hereof. Except as set forth in this Section 3.3 or
in the PMC Disclosure Schedule, as of the date of this Agreement, there are
no options, warrants or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock of PMC or
obligating PMC to issue or sell any shares of capital stock of, or other
equity interests in, PMC. All shares of PMC Common Stock subject to issuance
as aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, shall be duly authorized,
validly issued, fully paid and nonassessable. There are no obligations,
contingent or otherwise, of PMC to repurchase, redeem or otherwise acquire
any shares of PMC Common Stock or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any other
entity.
3.4 Authority Relative to This Agreement. PMC has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of
the stockholders of PMC of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by PMC and
the consummation by PMC of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
PMC and no other corporate proceedings on the part of PMC are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than, with respect to the Merger, the approval and adoption of this
Agreement by holders of a majority of the outstanding shares of PMC Common
Stock in accordance with the Utah Law and PMC's Articles of Incorporation and
Bylaws). This Agreement has been duly and validly executed and delivered by
PMC and, assuming the due authorization, execution and delivery by
Biorelease, constitutes legal and binding obligations of PMC, enforceable
against PMC in accordance with their respective terms.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by PMC
do not, and the performance of this Agreement by PMC shall not,
(i) conflict with or violate its Articles of Incorporation or
Bylaws, (ii) subject to obtaining the approval of PMC's
stockholders of the Merger and compliance with the requirements
set forth in Subsection (b) below, conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to PMC
or by which its or any of its properties is bound or affected, or
(iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default)
under, or impair PMC's rights or alter the rights or obligations
of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the properties
or assets of PMC pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which PMC is a party or by
which PMC or its properties are bound or affected.
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(b) The execution and delivery of this Agreement by PMC
do not, and the performance of this Agreement by PMC shall not,
require any consent, approval, authorization or permit of, or
filing with or notification to, any Governmental Entity, except
(A) for applicable requirements, if any, of the Securities Act,
the Exchange Act, state securities laws, and of foreign
Governmental Entities and the rules and regulations thereunder,
the rules and regulations of NASDAQ, and the filing and
recordation of the Certificate of Merger as required by Delaware
Law and Utah Law and (B) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such
filings or notifications, (i) would not prevent consummation of
the Merger or otherwise prevent PMC from performing its
obligations under this Agreement or (ii) could not, individually
or in the aggregate, reasonably be expected to have a Material
Adverse Effect on PMC.
3.6 Compliance; Permits.
(a) PMC is not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to PMC or by which its properties is bound or
affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which PMC is a party or by which PMC or its
properties is bound or affected, except for any conflicts,
defaults or violations which could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect
on PMC. To the knowledge of PMC, no investigation or review by any
governmental or regulatory body or authority is pending or
threatened against PMC, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same,
other than, in each such case, those the outcome of which could
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on PMC.
(b) PMC holds all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities
which are material to operation of the business of PMC
(collectively, the "PMC Permits"). PMC is in compliance in all
respects with the terms of the PMC Permits, except where failure
to comply could not reasonably be expected to have a Material
Adverse Effect on PMC.
3.7 Financial Statements.
(a) The PMC Disclosure Schedule contains an audited
balance sheet of PMC as of March 31, 1999 and related audited
statements of operation and changes in financial position for the
12 months then ended (collectively referred to as the "PMC
Financial Statements").
(b) All such financial statements have been prepared in
accordance with GAAP consistently applied throughout the periods
involved. As of the date of any of such balance sheets, except as
and to the extent reflected or reserved against therein, PMC did
not have any liabilities or obligations (absolute or contingent)
which should be reflected in a balance sheet or the notes thereto
prepared in accordance with GAAP, and all assets
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reflected therein are properly reported and present fairly the
value of the assets of PMC in accordance with GAAP. Such
statements of operations present fairly the results of operations
of PMC for the periods indicated. Such statements of changes in
financial position present fairly the information which should be
presented therein in accordance with GAAP.
(c) The financial and other books and records of PMC are
in all material respects complete and correct and have been
maintained in accordance with good business and accounting
practice.
3.8 No Undisclosed Liabilities. PMC does not have any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the financial
statements prepared in accordance with GAAP (including, without limitation,
in accordance with the revenue recognition principles thereof) which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of PMC taken as a whole, except (i)
liabilities provided for in PMC's balance sheet as of March 31, 1999, (ii)
liabilities incurred since March 31, 1999 in the ordinary course of business
consistent with past practices or (iii) banking, accounting, legal and
printing fees associated with the Merger.
3.9 Absence of Certain Changes or Events. Since March 31, 1999,
except as set forth in the PMC Disclosure Schedule, there has not been: (i)
any Material Adverse Effect on PMC, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of PMC's capital stock, or any purchase,
redemption or other acquisition by PMC of any of PMC's capital stock or any
other securities of PMC or any options, warrants, calls or rights to acquire
any such shares or other securities, (iii) any split, combination or
reclassification of any of PMC's capital stock, (iv) any granting by PMC of
any increase in compensation or fringe benefits, except for normal increases
of cash compensation in the ordinary course of business consistent with past
practice, or any payment by PMC of any bonus, except for bonuses made in the
ordinary course of business consistent with past practice, or any granting by
PMC of any increase in severance or termination pay or any entry by PMC into
any currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms
of which are materially altered upon the occurrence of a transaction
involving PMC of the nature contemplated hereby, (v) entry by PMC into any
licensing or other agreement with regard to the acquisition or disposition of
any material intellectual property other than licenses in the ordinary course
of business consistent with past practice, (vi) any material change by PMC in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (vii) any revaluation by PMC of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the
ordinary course of business.
3.10 Absence of Litigation. There are no material claims, actions,
suits or proceedings pending or, to the knowledge of PMC, threatened (or, to
the knowledge of PMC, any governmental or regulatory investigation pending or
threatened) against PMC as to which PMC has received any written notice or
assertion, or any properties or rights of PMC, before any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign.
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3.11 Employee Benefit Plans. PMC is not a party to any oral or
written (i) contract for the employment of any officer or employee that is
not terminable or 30 days (or less) notice, (ii) profit sharing, bonus,
deferred compensation, pension or retirement plan, agreement or arrangement;
or (iii) collective bargaining agreement. The only employee fringe or benefit
plan, commitment or other arrangements (whether or not set forth in a written
document and including, without limitation, all "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) that covers any active, former employee,
director or consultant of PMC, or with respect to which PMC has or may in the
future have liability, are listed in the PMC Disclosure Schedule (the
"Plans"). PMC has provided to Biorelease: (i) correct and complete copies of
all documents embodying each Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Plan and any other information
requested by Biorelease regarding the Plan.
3.12 Labor Matters. There is no litigation pending or, to the
knowledge of PMC, threatened, between PMC and any of their respective
employees. As of the date of this Agreement, PMC is not a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by PMC nor does PMC know of any activities or proceedings of
any labor union to organize any such employees. As of the date of this
Agreement, PMC has no knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of PMC.
3.13 Form S-4 Registration Statement; Proxy Statement. None of the
information supplied or to be supplied by PMC for inclusion or incorporation
by reference in (i) the Form S-4 Registration Statement will, at the time the
Form S-4 Registration Statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading; and (ii) the Proxy Statement/Prospectus to be filed with the
SEC by PMC and Biorelease pursuant to Section 6.1(a) hereof will, at the date
mailed to the stockholders of PMC, at the times of the PMC Stockholders'
Meeting and as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information
provided by PMC for inclusion in the Proxy Statement/Prospectus will comply
as to form in all material respects with the provisions of the Exchange Act
and the rules and regulations promulgated by the SEC thereunder.
3.14 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon PMC which has
or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of PMC, any acquisition of
property by PMC or the conduct of business by PMC as currently conducted.
3.15 Title to Property. PMC owns no real property. PMC has good
and defensible title to all of its material properties and assets, free and
clear of all liens, charges and encumbrances except liens for taxes not yet
due and payable and such liens or other imperfections of title, if any, as do
not materially detract from the value of or interfere with the present use of
the property
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affected thereby; and all leases pursuant to which PMC lease from others
material amounts of real or personal property are in good standing, valid and
effective in accordance with their respective terms, and there is not, under
any of such leases, any existing material default or event of default (or any
event which with notice or lapse of time, or both, would constitute a
material default and in respect of which PMC has not taken adequate steps to
prevent such default from occurring). All the plants, structures and
equipment of PMC, are in good operating condition and repair, in all material
respects.
3.16 Taxes. Prior to the Effective Date, PMC will have timely
filed all tax returns required to be filed by it (other than those that are
not, individually or in the aggregate, material), have paid all Taxes (as
defined below) shown thereon to be due and have provided adequate accruals in
all material respects in accordance with GAAP in its financial statements for
any Taxes that have not been paid, whether or not shown as being due on any
returns. In addition, (i) no material claim for unpaid Taxes that are
currently, or will be prior to the Effective Time, due and payable has become
a lien against the property of PMC or is being asserted against PMC, (ii) no
audit of any material Tax Return of PMC is being conducted by a tax
authority, (iii) no extension of the statute of limitations on the assessment
of any Taxes has been granted by PMC or any of its subsidiaries and is
currently in effect and (iv) there is no agreement, contract or arrangement
to which PMC is a party that may result in the payment of any amount that
would not be deductible pursuant to Sections 280G, 162(a) (by reason of being
unreasonable in amount), 162(b) through (p) or 404 of the Code. As used
herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
3.17 Environmental Matters. To the best of its knowledge, PMC (i)
has obtained all applicable permits, licenses and other authorizations which
are material to the business of PMC and required under Federal, state or
local laws relating to pollution or protection of the environment, including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, or hazardous or toxic materials or wastes into
ambient air, surface water, ground water, or land or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes by PMC (or its respective agents); (ii) are in material
compliance with all terms and conditions of such required permits, licenses
and authorizations, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any
regulation, code, plan, order, decree, judgment, notice or demand letter
issued, entered, promulgated or approved thereunder; (iii) as of the date
hereof, are not aware of nor have received notice of any event, condition,
circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued material compliance
or which would give rise to any material common law or statutory liability,
or otherwise form the basis of any claim, action, suit or proceeding, based
on or resulting from PMC's (or any of its respective agents)
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manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling, or the emission, discharge, or release into the
environment, of any pollutant, contaminant, or hazardous or toxic material or
waste; and (iv) have taken all actions necessary under applicable
requirements of Federal, state or local laws, rules or regulations to
register any products or materials required to be registered by PMC (or any
of its respective agents) thereunder.
3.18 Intangible Assets. The PMC Disclosure Schedule contains a
true and complete list of all patents and patent applications (pending or in
the process of preparation), domestic or foreign, patent rights, trademarks,
trade names and licenses under the patents of others, trade secrets, secret
processes and other proprietary rights of every kind and nature used or
necessary for use by PMC in its business as presently conducted, or
controlled in whole or in part by PMC or directly or indirectly owned or
controlled in whole or in party by PMC or any of PMC's officers, directors or
key employees. To the best of PMC's knowledge, all such patents, patent
applications, patent rights and licenses are valid and effective in
accordance with their terms, and all such trade names, trade secrets, secret
processes and other proprietary rights are valid and effective. To the best
of PMC's knowledge, the conduct of PMC's business does not infringe upon the
patents, trademarks, trade secrets, or copyrights or other intellectual
property rights, of any other party. PMC has not received any notice of any
claim of infringement. Except as disclosed in the PMC Disclosure Schedule,
there are no agreements, contracts or obligations under which PMC is
obligated with respect to, or is using, any patents, patent applications,
patent rights, trademarks, trade names, licenses under the patents of others,
trade secrets, secret processes or other proprietary rights. The trade
secrets and "know-how" of PMC are in such form and of such quality that,
following the Closing, PMC will be able to continue to sell the products
heretofore provided by PMC.
3.19 Agreements, Contracts and Commitments. Except as set forth in
the PMC Disclosure Schedule, PMC is not a party to and is not bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer, director or member of PMC's Board of
Directors, other than those that are terminable by PMC on no more
than thirty days notice and which do so with no express (whether
by contract or by policy) liability or financial obligation to
PMC;
(b) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation right plan
or stock purchase plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(c) any agreement, contract or commitment containing any
covenant limiting in any respect the right of PMC to engage in any
line of business or to compete with any person; or
(d) any agreement, contract or commitment currently in
force relating to the disposition or acquisition by PMC after the
date of this Agreement of a material amount of
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assets not in the ordinary course of business or pursuant to which
PMC has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise.
PMC is not and, to PMC's knowledge, no other party to a PMC
Contract (as defined below), is in breach, violation or default under, and
PMC has not received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which PMC is a party or by which it
is bound that are required to be disclosed in the PMC Disclosure Schedule
pursuant to this Section 3.20 hereof (any such agreement, contract or
commitment, a "PMC Contract") in such a manner as would permit any other
party to cancel or terminate any such PMC Contract, or would permit any other
party to seek material damages or other remedies (for any or all of such
breaches, violations or defaults, in the aggregate).
3.20 Insurance. PMC maintains insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of PMC (collectively, the "Insurance
Policies") which are of the type and in amounts customarily carried by
persons conducting businesses similar to those of PMC. There is no material
claim by PMC pending under any of the material Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds.
3.21 Directors and Officers. The PMC Disclosure Schedule contains
a complete list of the current Board of Directors and executive officers
of PMC.
3.22 Shareholder List. The PMC Disclosure Schedule contains an
alphabetical list, as of a date within thirty (30) days from the date hereof,
of all of the shareholders of PMC and the number of shares of PMC Common
Stock owned by each of them. That list also indicates which stock
certificates have stop transfer orders and restrictive legends placed upon
them.
3.23 Transfer Agent. PMC acts as its own transfer agent.
3.24 Stock Transfer Records. The stock transfer books and stock
ledgers of PMC are in good order, complete, accurate, and up to date, and
with all necessary signatures, and set forth all stock and securities issued,
transferred and surrendered. No duplicate certificate has been issued at any
time heretofore without an indemnity agreement and/or bond being posted. No
transfer has been made without surrender of the proper certificate duly
endorsed. All certificates so surrendered have been duly cancelled and are
attached to the proper stubs with all necessary stock powers attached hereto.
3.25 Corporate Record Books. The corporate record books of PMC are
in good order, complete, accurate, up to date, with all necessary signatures,
and set forth all meetings and actions set forth in all certificates of votes
of stockholders or directors furnished to anyone at any time.
3.26 Related Party Transactions Except as set forth in the PMC
Disclosure Schedule, neither any officer nor any director or employee of PMC,
nor any spouse or child of any of them, has any direct or indirect interest
in any competitor, supplier, or customer of PMC or in any person
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from whom or to whom PMC leases any real or personal property, or in any
other person with whom PMC is doing business.
3.27 Lack of Disputes. There is currently no material and adverse
dispute, pending or, to the knowledge of PMC, threatened, anticipated or
contemplated of any kind with any customer, supplier, source of financing,
employee, landlord, or licensee of PMC.
3.28 Board Approval. The Board of Directors of PMC has, as of the
date of this Agreement (i) approved, subject to stockholder approval, this
Agreement and the transactions contemplated hereby and thereby, (ii)
determined that the Merger is in the best interests of the stockholders of
PMC and is on terms that are fair to such stockholders and (iii) recommended
that the stockholders of PMC approve this Agreement and the Merger.
3.29 Vote Required. The affirmative vote of a majority of the
votes that holders of the outstanding shares of PMC Common Stock are entitled
to vote thereon is the only vote of the holders of any class or series of
PMC's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
3.30 Disclosures. None of the representations or warranties by PMC
herein and no statement contained in any certificate, Schedule or other
writing furnished by PMC in connection herewith contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein
not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BIORELEASE
Biorelease represents and warrants to PMC, subject to such
exceptions as are set forth in the Biorelease SEC Reports or specifically
disclosed in the Biorelease Disclosure Schedule (referencing the appropriate
section and paragraph number) delivered by Biorelease to PMC on or prior to
the date of this Agreement, as follows:
4.1 Organization and Qualification; Subsidiaries. Each of
Biorelease and its subsidiaries are a corporation duly organized, validly
existing and in good standing under the laws of Delaware and has the
requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being conducted.
Each of Biorelease and its subsidiaries in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business
as it is now being conducted, except where the failure to have such Approvals
would not, individually or in the aggregate, have a Material Adverse Effect
on Biorelease. Each of Biorelease and its subsidiaries are duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except for such failures to be so duly qualified or
licensed and in good standing that would not, either individually or in the
aggregate, have a Material Adverse Effect on Biorelease. Other than
Biorelease Technologies, Inc., a wholly owned subsidiary of Biorelease,
Biorelease does not directly or indirectly own any
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equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business, association or entity.
4.2 Certificate of Incorporation and Bylaws. Biorelease has
previously furnished to PMC a complete and correct copy of its Certificate of
Incorporation and Bylaws as amended to date. Such Certificate of
Incorporation and Bylaws and equivalent organizational documents of each
subsidiary are in full force and effect. Neither Biorelease nor any
subsidiaries are in violation of any of the provisions of its Certificate of
Incorporation or Bylaws.
4.3 Capitalization. The authorized capital stock of Biorelease
consists of 50,000,000 pre reverse split shares of Biorelease Common Stock,
par value $.01 per share. At the close of business on June 30, 1999 (i)
11,975,238 pre reverse split shares of Biorelease Common Stock were issued
and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 1,679,620 shares of pre reverse split Biorelease Common
Stock were reserved for issuance upon the exercise of outstanding options
("Biorelease Options") to purchase Biorelease Common Stock and (iii)
19,500,000 shares of pre reverse split shares of Biorelease Common Stock are
reserved for issuance to certain consultants and advisors of Biorelease. All
of the outstanding shares of Biorelease's capital stock have been duly
authorized and validly issued and are fully paid and nonassessable. All
shares of Biorelease Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall, and the shares of Biorelease Common Stock to
be issued pursuant to the Merger will be, duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in the Biorelease
Disclosure Schedule, no change in such capitalization has occurred between
March 31, 1999 and the date hereof. Except as set forth in this Section 4.3
or in the Biorelease Disclosure Schedule, as of the date of this Agreement,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock
of Biorelease or obligating Biorelease to issue or sell any shares of capital
stock of, or other equity interests in, Biorelease. There are no obligations,
contingent or otherwise, of Biorelease to repurchase, redeem or otherwise
acquire any shares of Biorelease Common Stock or to provide funds to or make
any investment (in the form of a loan, capital contribution or otherwise) in
any other entity.
4.4 Authority Relative to This Agreement. Biorelease has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder, subject to obtaining the approval
of Biorelease's stockholders of the issuance of Biorelease Common Stock in
the Merger, to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement by Biorelease and the
consummation by Biorelease of the transactions contemplated hereby has been
duly and validly authorized by all necessary corporate action on the part of
Biorelease and no other corporate proceedings on the part of Biorelease are
necessary to authorize this Agreement, or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Biorelease and, assuming the due authorization, execution and delivery by
PMC, constitutes legal and binding obligations of Biorelease, enforceable
against Biorelease in accordance with their respective terms.
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4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by
Biorelease do not, and the performance of this Agreement by
Biorelease shall not, (i) conflict with or violate the Certificate
of Incorporation, Bylaws or equivalent organizational documents of
Biorelease or any subsidiary, (ii) subject to compliance with the
requirements set forth in Section 4.5.(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree
applicable to Biorelease or any subsidiary or by which its
properties are bound or affected, or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair Biorelease's
rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a
lien or encumbrance on any of the properties or assets of
Biorelease pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Biorelease or any
subsidiary is a party or by which Biorelease or any subsidiary or
any of their respective properties are bound or affected.
(b) The execution and delivery of this Agreement by
Biorelease do not, and the performance of this Agreement by
Biorelease shall not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Governmental
Entity except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, state securities laws, and the
rules and regulations thereunder, the rules and regulations of
NASDAQ, and the filing and recordation of the Certificate or
Merger as required by the Delaware Law and Utah Law and (ii) where
the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, (i) would not
prevent consummation of the Merger or otherwise prevent Biorelease
from performing its obligations under this Agreement or (ii) could
not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on Biorelease.
4.6 Compliance; Permits.
(a) Biorelease is not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to Biorelease or by which its properties is
bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Biorelease is a party or by
which Biorelease or its properties is bound or affected, except
for any conflicts, defaults or violations which could not
reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Biorelease. To the knowledge of
Biorelease, no investigation or review by any governmental or
regulatory body or authority is pending or threatened against
Biorelease, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same, other than,
in each such case, those the outcome of which could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Biorelease.
(b) Biorelease holds all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities
which are material to operation of the business of
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Biorelease (collectively, the "Biorelease Permits"). Biorelease is
in compliance in all respects with the terms of the Biorelease
Permits, except where failure to comply could not reasonably be
expected to have a Material Adverse Effect on Biorelease.
4.7 SEC Filings; Financial Statements.
(a) Biorelease has made available to PMC a correct and
complete copy of all of the Biorelease SEC Reports, which are all
the forms, reports and documents required to be filed by
Biorelease with the SEC since June 30, 1999 and has also provided
PMC with a true and complete copy of all forms, reports and
documents filed with the SEC since June 30, 1994. The Biorelease
SEC Reports (A) were prepared in accordance with the requirements
of the Securities Act or the Exchange Act, as the case may be, and
(B) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement then on
the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
(b) Each set of consolidated financial statements
(including, in each case, any related notes thereto) contained in
the Biorelease SEC Reports was prepared in accordance with GAAP
(including, without limitation, in accordance with the revenue
recognition provisions thereof) applied on a consistent basis
throughout the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited statements, do not
contain footnotes as permitted by Form 10-Q of the Exchange Act)
and each fairly presents the consolidated financial position of
Biorelease and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were
not or are not expected to be material in amount.
(c) Biorelease has previously furnished to PMC a
complete and correct copy of any amendments or modifications,
which have not yet been filed with the SEC but which are required
to be filed, to agreements, documents or other instruments which
previously had been filed by Biorelease with the SEC pursuant to
the Securities Act or the Exchange Act.
(d) Biorelease has filed all the reports required to be
filed under the Exchange Act during the preceding twelve months.
(e) The Biorelease Common Stock is currently listed for
trading on the OTCBB under the symbol "BRLZ." Biorelease is
current with all filings and reports that are required to maintain
its listing on the OTCBB.
4.8 No Undisclosed Liabilities. Biorelease does not have any
liabilities (absolute, accrued, contingent or otherwise) of a nature required
to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP
(including, without limitation, in accordance with the revenue recognition
principles thereof)
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which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Biorelease taken as a whole,
except (i) liabilities provided for in Biorelease's balance sheet as of March
31, 1999, (ii) liabilities incurred since March 31, 1999 in the ordinary
course of business consistent with past practices or (iii) banking,
accounting, legal and printing fees associated with the Merger.
4.9 Absence of Certain Changes or Events. Since March 31, 1999,
except as set forth in the Biorelease Disclosure Schedule, there has not
been: (i) any Material Adverse Effect on Biorelease, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether
in cash, stock or property) in respect of, any of Biorelease's capital stock,
or any purchase, redemption or other acquisition by Biorelease of any of
Biorelease's capital stock or any other securities of Biorelease or any
options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of
Biorelease's capital stock, (iv) any granting by Biorelease of any increase
in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past
practice, or any payment by Biorelease of any bonus, except for bonuses made
in the ordinary course of business consistent with past practice, or any
granting by Biorelease of any increase in severance or termination pay or any
entry by Biorelease into any currently effective employment, severance,
termination or indemnification agreement or any agreement the benefits of
which are contingent or the terms of which are materially altered upon the
occurrence of a transaction involving Biorelease of the nature contemplated
hereby, (v) any material change by Biorelease in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, or
(vi) any revaluation by Biorelease of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off
notes or accounts receivable other than in the ordinary course of business.
4.10 Absence of Litigation. Except as set forth in the Biorelease
SEC Reports, there are no material claims, actions, suits or proceedings
pending or, to the knowledge of Biorelease, threatened (or to the knowledge
of Biorelease, any governmental or regulatory investigation pending or
threatened) against Biorelease or any subsidiary as to which Biorelease or
any subsidiary has received any written notice or assertion, or any
properties or rights of Biorelease or any subsidiary, before any court,
arbitrator or administrative, governmental or regulatory authority or body,
domestic or foreign.
4.11 Employee Benefit Plans. Biorelease is not a party to any oral
or written (i) contract for the employment of any officer or employee that is
not terminable or 30 days (or less) notice, (ii) profit sharing, bonus,
deferred compensation, pension or retirement plan, agreement or arrangement;
or (iii) collective bargaining agreement. The only employee fringe or benefit
plan, commitment or other arrangements (whether or not set forth in a written
document and including, without limitation, all "employee benefit plans"
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) that covers any active, former employee,
director or consultant of Biorelease, or with respect to which Biorelease has
or may in the future have liability, are listed in the Biorelease Disclosure
Schedule (the "Plans"). Biorelease has provided to PMC: (i) correct and
complete copies of all documents embodying each Plan including (without
limitation) all amendments thereto, all related trust
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documents, and all material written agreements and contracts relating to each
such Plan and any other information requested by PMC regarding the Plan.
4.12 Labor Matters. There is no litigation pending or, to the
knowledge of Biorelease, threatened, between Biorelease, its subsidiaries and
any of their respective employees. As of the date of this Agreement,
Biorelease is not a party to any collective bargaining agreement or other
labor union contract applicable to persons employed by Biorelease nor does
Biorelease know of any activities or proceedings of any labor union to
organize any such employees. As of the date of this Agreement, Biorelease has
no knowledge of any strikes, slowdowns, work stoppages or lockouts, or
threats thereof, by or with respect to any employees of Biorelease.
4.13 Form S-4 Registration Statement; Proxy Statement. None of the
information supplied or to be supplied by Biorelease for inclusion or
incorporation by reference in (i) the Form S-4 Registration Statement will,
at the time the Form S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading; and (ii) the Proxy Statement/Prospectus will,
at the dates mailed to the stockholders of PMC, at the time of the PMC
Stockholders Meeting and as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Form S-4 Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and
regulations promulgated by the SEC thereunder.
4.14 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon Biorelease
which has or could reasonably be expected to have the effect of prohibiting
or materially impairing any business practice of Biorelease, any acquisition
of property by Biorelease or the conduct of business by Biorelease as
currently conducted.
4.15 Title to Property. Biorelease owns no real property.
Biorelease has good and defensible title to all of its material properties
and assets, free and clear of all liens, charges and encumbrances except
liens for taxes not yet due and payable and such liens or other imperfections
of title, if any, as do not materially detract from the value of or interfere
with the present use of the property affected thereby; and all leases
pursuant to which Biorelease lease from others material amounts of real or
personal property are in good standing, valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or event of default (or any event which with notice
or lapse of time, or both, would constitute a material default and in respect
of which Biorelease has not taken adequate steps to prevent such default from
occurring). All the plants, structures and equipment of Biorelease, are in
good operating condition and repair, in all material respects.
4.16 Taxes. As of the Closing Date, Biorelease will have timely
filed all tax returns required to be filed by it (other than those that are
not, individually or in the aggregate, material), have paid all Taxes (as
defined below) shown thereon to be due and have provided adequate accruals in
all material respects in accordance with GAAP in its financial statements for
any Taxes
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that have not been paid, whether or not shown as being due on any returns. In
addition, (i) no material claim for unpaid Taxes that are currently, or will
be prior to the Effective Time, due and payable has become a lien against the
property of Biorelease or is being asserted against Biorelease, (ii) no audit
of any material Tax Return of Biorelease is being conducted by a tax
authority, (iii) no extension of the statute of limitations on the assessment
of any Taxes has been granted by Biorelease or any of its subsidiaries and is
currently in effect and (iv) there is no agreement, contract or arrangement
to which Biorelease is a party that may result in the payment of any amount
that would not be deductible pursuant to Sections 280G, 162(a) (by reason of
being unreasonable in amount), 162(b) through (p) or 404 of the Code. As used
herein, "Taxes" shall mean all taxes of any kind, including, without
limitation, those on or measured by or referred to as income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign. As used herein, "Tax Return"
shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
4.17 Environmental Matters. To the best of its knowledge,
Biorelease (i) has obtained all applicable permits, licenses and other
authorizations which are material to the business of Biorelease and required
under Federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or land or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants or hazardous or toxic materials or wastes by Biorelease (or its
respective agents); (ii) are in material compliance with all terms and
conditions of such required permits, licenses and authorizations, and also
are in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such laws or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) as of the date hereof, are not aware of nor have
received notice of any event, condition, circumstance, activity, practice,
incident, action or plan which is reasonably likely to interfere with or
prevent continued material compliance or which would give rise to any
material common law or statutory liability, or otherwise form the basis of
any claim, action, suit or proceeding, based on or resulting from
Biorelease's (or any of its respective agents) manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling, or
the emission, discharge, or release into the environment, of any pollutant,
contaminant, or hazardous or toxic material or waste; and (iv) have taken all
actions necessary under applicable requirements of Federal, state or local
laws, rules or regulations to register any products or materials required to
be registered by Biorelease (or any of its respective agents) thereunder.
4.18 Intangible Assets. The Biorelease Disclosure Schedule
contains a true and complete list of all patents and patent applications
(pending or in the process of preparation), domestic or foreign, patent
rights, trademarks, trade names and licenses under the patents of others,
trade secrets, secret processes and other proprietary rights of every kind
and nature used or necessary for use by Biorelease in its business as
presently conducted, or controlled in whole or in
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part by Biorelease or directly or indirectly owned or controlled in whole or
in party by Biorelease or any of Biorelease's officers, directors or key
employees. To the best of Biorelease's knowledge, all such patents, patent
applications, patent rights and licenses are valid and effective in
accordance with their terms, and all such trade names, trade secrets, secret
processes and other proprietary rights are valid and effective. To the best
of Biorelease's knowledge, the conduct of Biorelease's business does not
infringe upon the patents, trademarks, trade secrets, or copyrights or other
intellectual property rights, of any other party. Biorelease has not received
any notice of any claim of infringement. Except as disclosed in the
Biorelease Disclosure Schedule, there are no agreements, contracts or
obligations under which Biorelease is obligated with respect to, or is using,
any patents, patent applications, patent rights, trademarks, trade names,
licenses under the patents of others, trade secrets, secret processes or
other proprietary rights. The trade secrets and "know-how" of Biorelease are
in such form and of such quality that, following the Closing, Biorelease will
be able to continue to sell the products heretofore provided by Biorelease.
4.19 Agreements, Contracts and Commitments. The Biorelease
Disclosure Schedule contains a true and correct list of all material
contracts, agreements or other understandings or arrangements, written or
oral, or commitments therefor, relating to Biorelease, its business and
assets or liabilities (collectively, the "Biorelease Contracts"). Except as
set forth in the Biorelease Disclosure Schedule, Biorelease is not a party to
and is not bound by:
(a) any employment or consulting agreement, contract or
commitment with any officer, director or member of Biorelease's
Board of Directors, other than those that are terminable by
Biorelease on no more than thirty days notice and which do so with
no express (whether by contract or by policy) liability or
financial obligation to Biorelease;
(b) any agreement or plan, including, without
limitation, any stock option plan, stock appreciation right plan
or stock purchase plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the
transactions contemplated by this Agreement;
(c) any agreement, contract or commitment containing any
covenant limiting in any respect the right of Biorelease to engage
in any line of business or to compete with any person or granting
any exclusive distribution rights; or
(d) any agreement, contract or commitment currently in
force relating to the disposition or acquisition by Biorelease
after the date of this Agreement of a material amount of assets
not in the ordinary course of business or pursuant to which
Biorelease has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise.
Biorelease is not and, to Biorelease's knowledge, no other party
to a Biorelease Contract, is in breach, violation or default under, and
Biorelease has not received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
Biorelease Contracts in such a manner as would permit any other party to
cancel or terminate any
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such Biorelease Contract, or would permit any other party to seek material
damages or other remedies (for any or all of such breaches, violations or
defaults, in the aggregate).
4.20 Insurance. Biorelease maintains insurance policies (the
"Insurance Policies") which are of the type and in amounts customarily
carried by persons conducting businesses similar to those of Biorelease.
There is no material claim by Biorelease pending under any of the material
Insurance Policies as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds.
4.21 Directors, Officers and Affiliates. The Biorelease Disclosure
Schedule contains a complete list of the current Board of Directors and
executive officers of Biorelease and all persons who are an Affiliate of
Biorelease.
4.22 Prior Sales. The Biorelease Disclosure Schedule contains a
true, correct and complete current list of the names and addresses of the
purchasers of any securities of Biorelease that have been privately offered
and sold by Biorelease within the last two years from the date of this
Agreement, the prices paid by the purchasers of those securities and a brief
description of the facts upon which Biorelease relied in claiming an
exemption from the registration requirements of the state and federal
securities laws in making those sales.
4.23 Shareholder List. The Biorelease Disclosure Schedule contains
an alphabetical list, as of a date within thirty (30) days from the date
hereof, of all of the shareholders of record of Biorelease and the number of
shares of Biorelease Common Stock owned by each of them. That list also
indicates which stock certificates have stop transfer orders and restrictive
legends placed upon them.
4.24 Transfer Agent and Market Makers. The Biorelease Disclosure
Schedule contains the name of the transfer agent and any market makers for
the securities of Biorelease and a description of any affiliation between
those persons and Biorelease or any officer or director of Biorelease.
4.25 Stock Transfer Records. The stock transfer books and stock
ledgers of Biorelease are in good order, complete, accurate, and up to date,
and with all necessary signatures, and set forth all stock and securities
issued, transferred and surrendered. No duplicate certificate has been issued
at any time heretofore without an indemnity agreement and/or bond being
posted. No transfer has been made without surrender of the proper certificate
duly endorsed. All certificates so surrendered have been duly cancelled and
are attached to the proper stubs with all necessary stock powers attached
hereto.
4.26 Corporate Record Books. The corporate record books of
Biorelease are in good order, complete, accurate, up to date, with all
necessary signatures, and set forth all meetings and actions set forth in all
certificates of votes of stockholders or directors furnished to anyone at any
time.
4.27 Related Party Transactions Except as set forth in the
Biorelease Disclosure Schedule, neither any officer nor any director or
employee of Biorelease, nor any spouse or child
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of any of them, has any direct or indirect interest in any competitor,
supplier, or customer of Biorelease or in any person from whom or to whom
Biorelease leases any real or personal property, or in any other person with
whom Biorelease is doing business.
4.28 Lack of Disputes. There is currently no material and adverse
dispute, pending or, to the knowledge of Biorelease, threatened, anticipated
or contemplated of any kind with any customer, supplier, source of financing,
employee, landlord, or licensee of Biorelease.
4.29 Board Approval. The Board of Directors of Biorelease has, as
of the date hereof, (i) approved this Agreement, the Merger Agreement and the
transactions contemplated hereby and (ii) determined that the Merger is in
the best interests of the stockholders of Biorelease and is on terms that are
fair to such stockholders.
4.30 Vote Required. The affirmative vote of a majority of the
votes that holders of the outstanding shares of Biorelease Common Stock are
entitled to vote thereon is the only vote of the holders of any class or
series of Biorelease's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
4.31 Disclosures. None of the representations or warranties by
Biorelease herein and no statement contained in any certificate, Schedule or
other writing furnished by Biorelease in connection herewith contains or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
herein or therein not misleading.
ARTICLE 5
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business By PMC. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, PMC shall, except to
the extent that Biorelease shall otherwise consent in writing, carry on its
business, in all material respects, in the usual, regular and ordinary
course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due, and use its commercially
reasonable efforts consistent with past practices and policies to (i)
preserve intact its present business organization, (ii) keep available the
services of its present officers and employees and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings.
In addition, except as permitted by the terms of this Agreement,
and except as provided in Section 5.1 of the PMC Disclosure Schedule, without
the prior written consent of Biorelease, which consent will not be
unreasonably withheld or delayed, during the period from the date of this
Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, PMC shall not do any
of the following:
(a) Accelerate, amend or change the period of
exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director
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or other stock plans or authorize cash payments in exchange for
any options granted under any of such plans;
(b) Grant any severance or termination pay to any
officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as
previously disclosed in writing or made available to Biorelease,
or adopt any new severance plan;
(c) Declare, set aside or pay any dividends on or make
any other distributions (whether in cash, stock, equity securities
or property) in respect of any capital stock or split, combine or
reclassify any capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution
for any capital stock;
(d) Issue, deliver, sell, authorize, pledge or otherwise
encumber or propose any of the foregoing of, any shares of capital
stock or any securities convertible into shares of capital stock,
or subscriptions, rights, warrants or options to acquire any
shares of capital stock or any securities convertible into shares
of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or
convertible securities, other than (x) the issuance delivery
and/or sale of shares of PMC Common Stock pursuant to the exercise
of stock options or warrants therefor outstanding as of the date
of this Agreement, and (y) the granting of stock options (and the
issuance of Common Stock upon exercise thereof), in the ordinary
course and consistent with past practices, in an amount not to
exceed options to purchase (and the issuance of Common Stock upon
exercise thereof) 500,000 shares in the aggregate;
(e) Cause, permit or propose any amendments to its
Articles of Incorporation or Bylaws;
(f) Incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell
any debt securities or options, warrants, calls or other rights to
acquire any debt securities of PMC other than (i) in connection
with the financing of ordinary course trade payables consistent
with past practice or (ii) in the ordinary course of business;
(g) Make any individual or series of related payments
outside of the ordinary course of business in excess of $50,000,
other than banking, accounting, legal and printing fees associated
with the Merger;
(h) except in the ordinary course of business, modify,
amend or terminate any material contract or agreement to which PMC
is a party or waive, release or assign any material rights or
claims thereunder;
(i) materially revalue any of its assets or, except as
required by GAAP, make any change in accounting methods,
principles or practices;
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(j) Engage in any action that could reasonably be
expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code;
(k) Engage in any action with the intent to directly or
indirectly adversely impact any of the transactions contemplated
by this Agreement; or
(l) Agree in writing or otherwise to take any of the
actions described in subsections (a) through (k) above.
5.2 Conduct of Business by Biorelease.
(a) During the period from the date of this Agreement
and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Biorelease
shall, except to the extent that PMC shall otherwise consent in
writing, carry on its business, in all material respects, in the
usual, regular and ordinary course, in substantially the same
manner as heretofore conducted and in compliance with all
applicable laws and regulations, pay its debts and taxes when due
subject to good faith disputes over such debts or taxes, and pay
or perform other material obligations when due.
(b) In addition, except as permitted by the terms of
this Agreement, without the prior written consent of PMC, which
consent will not be unreasonably withheld or delayed, during the
period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement pursuant to its terms
or the Effective Time, Biorelease shall not do any of the
following and shall not permit its subsidiaries to do any of the
following:
(1) Accelerate, amend or change the period of
exercisability of options or restricted stock, or
reprice options granted under any employee, consultant,
director or other stock plans or authorize cash payments
in exchange for any options granted under any of such
plans;
(2) Grant any severance or termination pay to
any officer or employee except pursuant to written
agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing or
made available to PMC, or adopt any new severance plan;
(3) Declare, set aside or pay any dividends on
or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any capital
stock or split, combine or reclassify any capital stock
or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution
for any capital stock;
(4) Issue, deliver, sell, authorize, pledge or
otherwise encumber or propose any of the foregoing of,
any shares of capital stock or any securities
convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire
any shares of capital stock or any securities
convertible into shares of capital stock, or enter into
other agreements or commitments of any character
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obligating it to issue any such shares or convertible
securities, other than the issuance delivery and/or sale
of shares of Biorelease Common Stock pursuant to the
exercise of stock options or warrants therefor
outstanding as of the date of this Agreement;
(5) Cause, permit or propose any amendments to
its Articles of Incorporation or Bylaws;
(6) Sell, lease, license, encumber or
otherwise dispose of any properties or assets which are
material, individually or in the aggregate, to the
business of Biorelease;
(7) Incur any indebtedness for borrowed money
or guarantee any such indebtedness of another person,
issue or sell any debt securities or options, warrants,
calls or other rights to acquire any debt securities of
Biorelease;
(8) Adopt or amend any employee benefit plan
or employee stock purchase or employee stock option
plan, or enter into any employment contract or
collective bargaining agreement, pay any special bonus
or special remuneration to any director or employee, or
increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of
its directors, officers, employees or consultants other
than in the ordinary course of business, consistent with
past practice, or change in any material respect any
management policies or procedures;
(9) Make any individual or series of related
payments outside of the ordinary course of business in
excess of $10,000, other than banking, accounting, legal
and printing fees associated with the Merger;
(10) Except in the ordinary course of
business, modify, amend or terminate any material
contract or agreement to which Biorelease is a party or
waive, release or assign any material rights or claims
thereunder;
(11) Materially revalue any of its assets or,
except as required by GAAP, make any change in
accounting methods, principles or practices;
(12) Engage in any action that could
reasonably be expected to cause the Merger to fail to
qualify as a "reorganization" under Section 368(a) of
the Code;
(13) Engage in any action with the intent to
directly or indirectly adversely impact any of the
transactions contemplated by this Agreement; or
(14) Agree in writing or otherwise to take any
of the actions described in subsections (1) through (13)
above.
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(c) Biorelease will either liquidate its subsidiary,
Biorelease Technologies, Inc. ("BTI"), sell all of the assets or
shares of BTI or spin off all of the shares of BTI to those
persons who are shareholders of record of Biorelease as of a date
before the Effective Date. As a result of that transaction, BTI
shall cease to be a subsidiary of Biorelease as of the Effective
Date and Biorelease shall not have any of the assets or
liabilities of BTI.
ARTICLE 6
ADDITIONAL AGREEMENTS
6.1 Proxy Statement/Prospectus; Form S-4 Registration Statement;
Other Filings; Board Recommendations. As promptly as practicable after the
execution of this Agreement, PMC and Biorelease will prepare, and file with
the SEC, the Form S-4 Registration Statement in which the Proxy
Statement/Prospectus will be included as a prospectus. Each of PMC and
Biorelease will respond to any comments of the SEC, will use its respective
commercially reasonable efforts to have the Form S-4 Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing and PMC and Biorelease will each cause the Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest
practicable time after the Form S-4 Registration Statement is declared
effective by the SEC. As promptly as practicable after the date of this
Agreement, each of PMC and Biorelease will prepare and file any other filings
required to be filed by it under the Exchange Act, the Securities Act or any
other Federal, foreign or state securities or related laws relating to the
Merger and the transactions contemplated by this Agreement (the "Other
Filings"). Each of PMC and Biorelease will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Form S-4 Registration
Statement, the Proxy Statement/Prospectus or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the Form S-4 Registration Statement, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of PMC and
Biorelease will cause all documents that it is responsible for filing with
the SEC or other regulatory authorities under this Section 6.1(a) to comply
in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs which
is required to be set forth in an amendment or supplement to the Proxy
Statement/Prospectus, the Form S-4 Registration Statement or any Other
Filing, PMC or Biorelease, as the case may be, will promptly inform the other
of such occurrence and cooperate in filing with the SEC or its staff or any
other government officials, and/or mailing to stockholders of PMC, such
amendment or supplement.
6.2 Meeting of PMC Stockholders.
(a) Promptly after the date hereof, PMC will take all
action necessary in accordance with the Utah Law and its Articles
of Incorporation and Bylaws to convene the PMC Stockholders'
Meeting to be held as promptly as practicable, and in any event
(to the extent permissible under applicable law) within 45 days
after the declaration of effectiveness of the Form S-4
Registration Statement, for the purpose of voting upon this
Agreement and the Merger. PMC will use its commercially reasonable
efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and
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the approval of the Merger and will take all other action
necessary or advisable to secure the vote or consent of its
stockholders required by the rules of NASDAQ or Utah Law to obtain
such approvals. Notwithstanding the anything to the contrary
contained in this Agreement, PMC may adjourn or postpone the PMC
Stockholders' Meeting to the extent necessary to ensure that any
necessary supplement or amendment to the Prospectus/Proxy
Statement is provided to PMC's stockholders in advance of a vote
on the Merger and this Agreement or, if as of the time for which
PMC Stockholders' Meeting is originally scheduled (as set forth in
the Prospectus/Proxy Statement) there are insufficient shares of
PMC Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the PMC
Stockholders' Meeting. PMC shall ensure that the PMC Stockholders'
Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by PMC in connection with the PMC
Stockholders' Meeting are solicited, in compliance with the Utah
Law, its Articles of Incorporation and Bylaws and all other
applicable legal requirements. PMC's obligation to call, give
notice of, convene and hold the PMC Stockholders' Meeting in
accordance with this Section 6.2(a) shall not be limited to or
otherwise affected by any withdrawal, amendment or modification of
the recommendation of the Board of Directors of PMC with respect
to the Merger.
(b) The Board of Directors of PMC shall recommend that
PMC's stockholders vote in favor of and adopt and approve this
Agreement and the Merger at the PMC Stockholders' Meeting. The
Prospectus/Proxy Statement shall include a statement to the effect
that the Board of Directors of PMC has recommended that PMC's
stockholders vote in favor of and adopt and approve this Agreement
and the Merger at the PMC Stockholders' Meeting. Neither the Board
of Directors of PMC nor any committee thereof shall withdraw,
amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Biorelease, the recommendation of
the Board of Directors of PMC that PMC's stockholders vote in
favor of and adopt and approve this Agreement and the Merger.
6.3 Meeting of Biorelease Stockholders.
(a) Promptly after the date hereof, Biorelease will take
all action necessary in accordance with the Delaware Law and its
Articles of Incorporation and Bylaws to convene the Biorelease
Stockholders' Meeting to be held as promptly as practicable, and
in any event (to the extent permissible under applicable law)
within 45 days after the declaration of effectiveness of the Form
S-4 Registration Statement, for the purpose of voting upon this
Agreement and the Merger. Biorelease will use its commercially
reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the
approval of the Merger and will take all other action necessary or
advisable to secure the vote or consent of its stockholders
required by the rules of NASDAQ or Delaware Law to obtain such
approvals. Notwithstanding the anything to the contrary contained
in this Agreement, Biorelease may adjourn or postpone the
Biorelease Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Prospectus/Proxy
Statement is provided to Biorelease's stockholders in advance of a
vote on the Merger and this Agreement or, if as of the time for
which Biorelease Stockholders' Meeting is originally scheduled (as
set forth in the
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Prospectus/Proxy Statement) there are insufficient shares of
Biorelease Common Stock represented (either in person or by proxy)
to constitute a quorum necessary to conduct the business of the
Biorelease Stockholders' Meeting. Biorelease shall ensure that the
Biorelease Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited by Biorelease
in connection with the Biorelease Stockholders' Meeting are
solicited, in compliance with the Utah Law, its Articles of
Incorporation and Bylaws, the rules of NASDAQ and all other
applicable legal requirements. Biorelease's obligation to call,
give notice of, convene and hold the Biorelease Stockholders'
Meeting in accordance with this Section 6.3(a) shall not be
limited to or otherwise affected by any withdrawal, amendment or
modification of the recommendation of the Board of Directors of
Biorelease with respect to the Merger.
(b) The Board of Directors of Biorelease shall recommend
that Biorelease's stockholders vote in favor of and adopt and
approve this Agreement and the Merger at the Biorelease
Stockholders' Meeting. The Prospectus/Proxy Statement shall
include a statement to the effect that the Board of Directors of
Biorelease has recommended that Biorelease's stockholders vote in
favor of and adopt and approve this Agreement and the Merger at
the Biorelease Stockholders' Meeting. Neither the Board of
Directors of Biorelease nor any committee thereof shall withdraw,
amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to PMC, the recommendation of the Board
of Directors of Biorelease that Biorelease's stockholders vote in
favor of and adopt and approve this Agreement and the Merger.
6.4 Confidentiality; Access to Information.
(a) The parties acknowledge that PMC and Biorelease have
previously executed a Confidentiality Agreement, dated as of
________________, 1999 (the "Confidentiality Agreement"), which
Confidentiality Agreement will continue in full force and effect
in accordance with its terms.
(b) Access to PMC Information. PMC will afford
Biorelease and its accountants, counsel and other representatives
reasonable access during normal business hours to the properties,
books, records and personnel of PMC during the period prior to the
Effective Time to obtain all information concerning the business
of PMC as Biorelease may reasonably request. No information or
knowledge obtained by Biorelease in any investigation pursuant to
this Section will affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
(c) Access to Biorelease Information. Biorelease will
afford PMC and its accountants, counsel and other representatives
reasonable access during normal business hours to the properties,
books, records and personnel of Biorelease during the period prior
to the Effective Time to obtain all information concerning the
business of Biorelease as PMC may reasonably request. No
information or knowledge obtained by PMC in any investigation
pursuant to this Section will affect or be deemed to modify any
representation
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or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
6.5 Public Disclosure. Biorelease and PMC will consult with each
other, and to the extent practicable, agree, before issuing any press release
or otherwise making any public statement with respect to the Merger, this
Agreement or an Acquisition Proposal and will not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law or any listing agreement with a national securities
exchange or NASDAQ. The parties have agreed to the text of the joint press
release announcing the signing of this Agreement.
6.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by
this Agreement, including using reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Article 7 to be
satisfied, (ii) the obtaining of all necessary actions or
nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the defending of any
suits, claims, actions, investigations or proceedings, whether
judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by
any court or other Governmental Entity vacated or reversed and
(iv) the execution or delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. In connection
with and without limiting the foregoing, each of Biorelease and
PMC and its Board of Directors shall, if any state takeover
statute or similar statute or regulation is or becomes applicable
to the Merger, this Agreement or any of the transactions
contemplated by this Agreement, use all reasonable efforts to
ensure that the Merger and the other transactions contemplated by
this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise to minimize
the effect of such statute or regulation on the Merger, this
Agreement and the transactions contemplated hereby.
Notwithstanding anything herein to the contrary, nothing in this
Agreement shall be deemed to require Biorelease or PMC or any
subsidiary or affiliate thereof to agree to any divestiture by
itself or any of its affiliates of shares of capital stock or of
any business, assets or property, or the imposition of any
material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets,
properties and stock.
(b) PMC shall give prompt notice to Biorelease of any
representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate, or any
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failure of PMC to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the
conditions set forth in Section 7.3(a) or 7.3(b) would not be
satisfied, PROVIDED, HOWEVER, that no such notification shall
affect the representations, warranties, covenants or agreements of
the parties or the conditions to the obligations of the parties
under this Agreement.
(c) Biorelease shall give prompt notice to PMC of any
representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate, or any failure of Biorelease to
comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it
under this Agreement, in each case, such that the conditions set
forth in Section 7.2(a) or 7.2(b) would not be satisfied,
PROVIDED, HOWEVER, that no such notification shall affect the
representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under
this Agreement.
6.7 Third Party Consents. As soon as practicable following the
date hereof, Biorelease and PMC will each use its commercially reasonable
efforts to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required
to be obtained in connection with the consummation of the transactions
contemplated hereby.
6.8 Stock Options and Employee Benefits.
(a) At the Effective Time, each outstanding option to
purchase shares of PMC Common Stock (each, a "PMC Stock Option")
under the PMC Stock Option Plan, whether or not exercisable,
whether or not vested, shall by virtue of the Merger and without
any further action on the part of PMC or the holder thereof, be
assumed by Biorelease in such manner that Biorelease (i) is
"assuming a stock option in a transaction to which Section 424(a)
applied" within the meaning of Section 424 of the Code, or (ii) to
the extent that Section 424 of the Code does not apply to any such
PMC Stock Options, would be a transaction within Section 424 of
the Code. Each PMC Stock Option so assumed by Biorelease under
this Agreement will continue to have, and be subject to, the same
terms and conditions of such options immediately prior to the
Effective Time (including, without limitation, any repurchase
rights or vesting provisions), except that (1) each PMC Stock
Option will be exercisable (or will become exercisable in
accordance with its terms) for the number of whole shares of
Biorelease Common Stock equal to the product of the number of
shares of PMC Common Stock that were issuable upon exercise of
such PMC Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of Biorelease Common Stock and (2) the per
share exercise price for the shares of Biorelease Common Stock
issuable upon exercise of such assumed PMC Stock Option will be
equal to the quotient determined by dividing the exercise price
per share of PMC Common Stock at which such PMC Stock Option was
exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
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(b) It is intended that PMC Stock Options assumed by
Biorelease shall qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Code to the extent
PMC Stock Options qualified as incentive stock options immediately
prior to the Effective Time and the provisions of this Section 6.8
shall be applied consistent with such intent.
(c) From and after the Effective Time, Biorelease shall
grant all employees credit for all service (to the same extent as
service with Biorelease is taken into account with respect to
similarly situated employees of Biorelease) with PMC prior to the
Effective Time for eligibility and vesting purposes.
6.9 Form S-8. Biorelease agrees to file a registration statement
on Form S-8 for the shares of Biorelease Common Stock issuable with respect
to assumed PMC Stock Options as soon as is reasonably practicable after the
Effective Time (but in any event within five (5) business days of the
Effective Time) and intends to maintain the effectiveness of such
registration statement thereafter for so long as any of such options or other
rights remain outstanding.
6.10 OTCBB and NASDAQ Listings. Biorelease agrees to apply, at the
expense of PMC or the Surviving Corporation, for listing on the OTCBB the
shares of Biorelease Common Stock issuable, and those required to be reserved
for issuance, in connection with the Merger, upon official notice of
issuance. Biorelease will also, as soon as practicable after the date hereof,
seek to have all of the common stock of Biorelease listed on the NASDAQ Small
Cap Market. The parties acknowledge that the listing on the NASDAQ will
require, among other things, that the Form S-4 Registration Statement be
declared effective by the SEC and PMC must obtain sufficient funds to satisfy
the net worth requirement for initial listing on NASDAQ.
6.11 PMC Affiliate Agreement. Set forth in the PMC Disclosure
Schedule is a list of those persons who may be deemed to be, in PMC's
reasonable judgment, affiliates of PMC within the meaning of Rule 145
promulgated under the Securities Act (each a "PMC Affiliate"). PMC will
provide Biorelease with such information and documents as Biorelease
reasonably requests for purposes of reviewing such list. PMC will use its
commercially reasonable efforts to deliver or cause to be delivered to
Biorelease, as promptly as practicable on or following the date hereof, from
each PMC Affiliate an executed affiliate agreement in substantially the form
attached hereto as EXHIBIT B (the "PMC Affiliate Agreement"), each of which
will be in full force and effect as of the Effective Time. Biorelease will be
entitled to place appropriate legends on the certificates evidencing any
Biorelease Common Stock to be received by a PMC Affiliate pursuant to the
terms of this Agreement, and to issue appropriate stop transfer instructions
to the transfer agent for the Biorelease Common Stock, consistent with the
terms of the PMC Affiliate Agreement.
6.12 Comfort Letter of Biorelease's Auditors. Prior to the
Closing, Biorelease shall cause Berry, Dunn, McNeil & Parker, P.C., certified
public accountants to Biorelease, to provide a letter reasonably acceptable
to PMC, relating to their audit of the financial statements relating to
Biorelease contained in or incorporated by reference in the Form S-4
Registration Statement.
6.13 Comfort Letter of PMC's Auditors. Prior to the Closing, PMC
shall cause Heine & Associates, L.L.P., certified public accountants to PMC,
to provide a letter reasonably
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acceptable to Biorelease, relating to their audit of the financial statements
relating to PMC contained in or incorporated by reference in the Form S-4
Registration Statement.
6.14 Biorelease Audit; Accountants' Consent. Biorelease shall
cause Berry, Dunn, McNeil & Parker, P.C., certified public accountants to
Biorelease, by a target date of August 15, 1999 but in no event later than
September 15, 1999; (i) to complete, and to communicate to PMC the results
of, an audit of Biorelease's financial statements as of and for the year
period ending June 30, 1999 (the "1999 Audit"); and (ii) to provide, upon
request, an accountants' consent for the inclusion, in the Proxy
Statement/Prospectus, of audit report(s) for the periods required to be
included in such Proxy Statement/Prospectus (irrespective of whether an audit
for such period is required under SEC rules) (the "Accountants' Consent").
The inclusion of a going concern qualification in the 1999 Audit shall not be
deemed to result in a breach of the covenant set forth in this Section 6.14.
6.15 PMC Accountants' Consent. PMC shall cause Hein + Associates,
L.L.P., certified public accountants to PMC, to provide, upon request, an
accountants' consent for the inclusion, in the Proxy Statement/Prospectus, of
audit report(s) for the periods required to be included in such Proxy
Statement/Prospectus (irrespective of whether an audit for such period is
required under SEC rules) (the "Accountants' Consent"). The inclusion of a
going concern qualification in the 1999 Audit shall not be deemed to result
in a breach of the covenant set forth in this Section 6.15.
ARTICLE 7
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger.
The respective obligations of each party to this Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted, and the Merger shall have been duly
approved, by the requisite vote under applicable law, by the
stockholders of PMC and of Biorelease.
(b) Form S-4 Registration Statement Effective; Proxy
Statement. The SEC shall have declared the Form S-4 Registration
Statement effective. No stop order suspending the effectiveness of
the Form S-4 Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar
proceeding in respect of the Proxy Statement/Prospectus, shall
have been initiated or threatened in writing by the SEC.
(c) No Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
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(d) Tax Opinion. PMC shall have received a written
opinion from its tax counsel, Berry Moorman, P.C., in form and
substance reasonably satisfactory to them, to the effect that the
Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and such opinion shall not have been
withdrawn. The parties to this Agreement agree to make such
reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
(e) Cash Held by PMC. PMC currently has a working capital
deficit and will seek to raise additional funds through the sale
of preferred stock, common stock and/or warrants. At some time
within the six months prior to the closing, PMC shall have raised
sufficient funds through the sale of preferred stock, common stock
and/or warrants or from its operation so that it will have
Adjusted Cash (as defined below) of at least $2,000,000 as shown
on a balance sheet attested to by PMC's president and CFO. For
purposes of the foregoing, the Adjusted Cash shall equal the cash
and cash equivalents shown on that balance sheet plus $2,139,460
(PMC's current liabilities and long term shown on that balance
sheet plus $2,139,460 (PMC's liabilities as of June 30, 1999)
minus the current and long term liabilities shown on that balance
sheet. As of the closing, the Adjusted Cash shall equal at least
$1,000,000.
7.2 Additional Conditions to Obligations of PMC. The obligation of
PMC to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by PMC:
(a) Representations and Warranties. Each representation
and warranty of Biorelease contained in this Agreement (i) shall
have been true and correct as of the date of this Agreement and
(ii) shall be true and correct on and as of the Closing Date with
the same force and effect as if made on the Closing Date except,
(A) in each case, or in the aggregate, as does not constitute a
Material Adverse Effect on Biorelease, (B) for changes
contemplated by this Agreement and (C) for those representations
and warranties which address matters only as of a particular date
(which representations shall have been true and correct except as
does not constitute a Material Adverse Effect on Biorelease as of
such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties,
(i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases
contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the
Biorelease Disclosure Schedule made or purported to have been made
after the date of this Agreement shall be disregarded). PMC shall
have received a certificate with respect to the foregoing signed
on behalf of Biorelease by an authorized officer of Biorelease.
(b) Agreements and Covenants. Biorelease shall have
performed or complied in all material respects with all agreements
and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date, and PMC shall
have received a certificate to such effect signed on behalf of
Biorelease by an authorized officer of Biorelease.
(c) Material Adverse Effect. No Material Adverse Effect
with respect to Biorelease shall have occurred since the date of
this Agreement.
(d) Net Worth of Biorelease. Biorelease shall have a net
worth of at least $0, after accounting for all expenses to be paid
by Biorelease hereunder and the spin off of BTI. That net worth
shall be shown on a balance sheet prepared by Biorelease's
independent auditors.
(e) Spin Off of BTI. As set forth in Section 5.2(c),
Biorelease shall have spun off or liquidated its operating
subsidiary, BTI
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(f) Representations by Principal Shareholder. Dr. R.
Bruce Reeves, President and a principal shareholder of Biorelease,
will execute and deliver to PMC a certificate in which he warrants
and represents that, to the best of his knowledge after due
investigations, the representations and warranties made herein by
Biorelease are true and correct.
7.3 Additional Conditions to the Obligations of Biorelease. The
obligations of Biorelease to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Biorelease:
(a) Representations and Warranties. Each representation
and warranty of PMC contained in this Agreement (i) shall have
been true and correct as of the date of this Agreement and (ii)
shall be true and correct on and as of the Closing Date with the
same force and effect as if made on and as of the Closing Date
except (A) in each case, or in the aggregate, as does not
constitute a Material Adverse Effect on PMC (B) for changes
contemplated by this Agreement and (C) for those representations
and warranties which address matters only as of a particular date
(which representations shall have been true and correct except as
does not constitute a Material Adverse Effect on PMC as of such
particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties,
(i) all "Material Adverse Effect" qualifications and other
qualifications based on the word "material" or similar phrases
contained in such representations and warranties shall be
disregarded and (ii) any update of or modification to the PMC
Disclosure Schedule made or purported to have been made after the
date of this Agreement shall be disregarded). Biorelease shall
have received a certificate with respect to the foregoing signed
on behalf of PMC by an authorized officer of PMC.
(b) Agreements and Covenants. PMC shall have performed
or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied
with by it at or prior to the Closing Date, and Biorelease shall
have received a certificate to such effect signed on behalf of PMC
by the Chief Executive Officer and the Chief Financial Officer of
PMC.
(c) Material Adverse Effect. No Material Adverse Effect
with respect to PMC and its subsidiaries shall have occurred since
the date of this Agreement.
(d) Affiliate Agreements. Each of the PMC Affiliates
shall have entered into the PMC Affiliate Agreement and each of
such agreements will be in full force and effect as of the
Effective Time.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the requisite approvals
of the stockholders of PMC or Biorelease:
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(a) by mutual written consent duly authorized by the
Boards of Directors of Biorelease and PMC;
(b) by either PMC or Biorelease if the Merger shall not
have been consummated by March 31, 2000 for any reason; PROVIDED,
HOWEVER, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose action or
failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement;
(c) by either PMC or Biorelease if a Governmental Entity
shall have issued an order, decree or ruling or taken any other
action, in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, which order,
decree, ruling or other action is final and nonappealable;
(d) by either PMC or Biorelease if the required approval
of the stockholders of PMC contemplated by this Agreement shall
not have been obtained by reason of the failure to obtain the
required vote at a meeting of PMC stockholders duly convened
therefor or at any adjournment thereof (PROVIDED that the right to
terminate this Agreement under this Section 8.1(d) shall not be
available to PMC where the failure to obtain PMC stockholder
approval shall have been caused by the action or failure to act of
PMC and such action or failure to act constitutes a breach by PMC
of this Agreement);
(e) by either PMC or Biorelease if the required approval
of the stockholders of Biorelease contemplated by this Agreement
shall not have been obtained by reason of the failure to obtain
the required vote at a meeting of Biorelease stockholders duly
convened therefor or at any adjournment thereof (PROVIDED that the
right to terminate this Agreement under this Section 8.1(e) shall
not be available to Biorelease where the failure to obtain
Biorelease stockholder approval shall have been caused by the
action or failure to act of Biorelease and such action or failure
to act constitutes a breach by Biorelease of this Agreement);
(f) by PMC, upon a breach of any representation,
warranty, covenant or agreement on the part of Biorelease set
forth in this Agreement, or if any representation or warranty of
Biorelease shall have become untrue, in either case such that the
conditions set forth in Section 7.2(a) or Section 7.2(b) would not
be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED that
if such inaccuracy in Biorelease's representations and warranties
or breach by Biorelease is curable by Biorelease through the
exercise of its commercially reasonable efforts, then PMC may not
terminate this Agreement under this Section 8.1(f) for thirty days
after delivery of written notice from PMC to Biorelease of such
breach, provided Biorelease continues to exercise commercially
reasonable efforts to cure such breach (it being understood that
PMC may not terminate this Agreement pursuant to this paragraph
(f) if it shall have materially breached this Agreement or if such
breach by Biorelease is cured during such thirty day period); or
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(g) by Biorelease, upon a breach of any representation,
warranty, covenant or agreement on the part of PMC set forth in
this Agreement, or if any representation or warranty of PMC shall
have become untrue, in either case such that the conditions set
forth in Section 7.3(a) or Section 7.3(b) would not be satisfied
as of the time of such breach or as of the time such
representation or warranty shall have become untrue, PROVIDED,
that if such inaccuracy in PMC's representations and warranties or
breach by PMC is curable by PMC through the exercise of its
commercially reasonable efforts, then Biorelease may not terminate
this Agreement under this Section 8.1(g) for thirty days after
delivery of written notice from Biorelease to PMC of such breach,
provided PMC continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Biorelease may not
terminate this Agreement pursuant to this paragraph (g) if it
shall have materially breached this Agreement or if such breach by
PMC is cured during such thirty day period).
8.2 Notice of Termination; Effect of Termination. Any termination
of this Agreement under Section 8.1 above will be effective immediately upon
the delivery of written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in
Section 8.1, this Agreement shall be of no further force or effect, except
(i) as set forth in this Section 8.2, Section 8.3 and Article 9 (General
Provisions), each of which shall survive the termination of this Agreement,
and (ii) nothing herein shall relieve any party from liability for any
willful breach of this Agreement. No termination of this Agreement shall
affect the obligations of the parties contained in the Confidentiality
Agreement, all of which obligations shall survive termination of this
Agreement in accordance with their terms.
8.3 Fees and Expenses. Except as set forth in this Section 8.3,
all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the Merger is consummated. As used herein, "Post Form
10KSB" when referring to any expenses incurred by Biorelease shall refer to
expenses that relate to periods after Biorelease files its Form 10KSB for the
year ended June 30, 1999 and shall not include any expenses incurred by
Biorelease in preparing that Form 10KSB or the audited financial statements
included therein. The Post Form 10KSB expenses of Biorelease that will be
reimbursed by PMC hereunder shall not include any fees or expenses relating
to the spinoff or liquidation of Biorelease's subsidiary, BTI; except as
provided in Section 8.3(c) hereof.
(a) Expenses to be paid by PMC. PMC shall pay the
following expenses relating to the Merger: the legal fees of its
securities counsel, (including all legal fees, expenses related to
the preparation and filing of the Form S-4 Registration Statement
and the preparation of the Proxy Statement/Prospectus); all audit
costs concerning the pre-closing and post-closing audit of PMC,
(including the cost of producing any audited or unaudited
pro-forma financial statements and/or any audited or unaudited
stub financial statements for PMC); any Post Form 10KSB auditor
fees incurred by Biorelease for the production of similar
pro-forma or stub period financial statements relating to the
Merger; the Post Form 10KSB legal and other professional fees
incurred by Biorelease relating to the Merger; Biorelease's Post
Form 10KSB transfer agent fees and expenses; the Delaware
franchise fees and filing fees (to complete the pre-closing
capital structure changes called for in this Agreement); all
costs relating to press releases made by Biorelease; the cost of
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printing new stock certificates; the printing, duplication and
mailing costs of the shareholders letter, proxy statement, meeting
notice, and transmittal form; and the post-closing stock transfer
fees for the re-issuance of replacement stock certificates in the
new name of Biorelease. Since Biorelease must advance monies
and/or incur the forgoing described reimbursable expenses prior to
Closing, PMC has advanced to Biorelease a sum of ten thousand
($10,000.00) dollars. PMC shall receive a detailed estimate of all
of Biorelease's expenses to be reimbursed by PMC prior to
incurring the expenses for which PMC would be obligated.
Biorelease shall provide an accounting to PMC for all monies used
from PMC advances. PMC shall replenish this expense fund from time
to time upon the written request of Biorelease. The written
requests for funds shall contain reasonably detailed estimates as
to the anticipated additional expenses to be advanced by PMC. The
failure of PMC to provide the requested additional funds to
Biorelease within ten (10) days after receipt of such written
notice, will constitute a default under the terms of this
Agreement. The maximum amount of Biorelease's fees and expenses
that will be required to be paid by PMC hereunder shall be
$40,000, including the $10,000 previously advanced by PMC.
(b) Expenses to be paid by Biorelease. Except as set
forth in Section 8.3 with respect to certain Post Form 10KSB
expenses of Biorelease that will be paid by PMC, Biorelease shall
pay the costs related to initiating the following actions: the
legal fees of its securities counsel; the cost of an opinion
letter by legal counsel regarding present or past litigation;
audit fees to its auditors for pre-closing audit work concerning
Biorelease only; the cost of preparation of board minutes and
resolutions of Biorelease; shareholder consent resolutions; cover
letter to transfer agent; various letters to NASD, and other
regulatory agencies (concerning the required advance notices of
the impending transaction and reverse-stock split); a letter to
apply for a new CUSIP number; assistance to PMC on choice and
printing of a new stock certificate; and a draft of a transmittal
form for the new name replacement stock certificate.
(c) Cost of Spinning Off Subsidiary. Biorelease will
either spinoff all of the shares of capital stock of its
subsidiary, Biorelease Technologies Inc. ("BTI"), to the persons
who were shareholders of Biorelease prior to the Merger or sell
the assets of BTI and distribute the net proceeds to those
shareholders. Except as set forth below, Biorelease will pay all
costs of completing those transactions. In the event Biorelease
desires to spinoff the shares of capital stock of BTI, then
Biorelease will, at its expense, prepare and file any registration
statement required to be filed with the SEC and state securities
administrators to enable those shares to be issued and pay all
costs of printing and distributing the prospectus to those
shareholders. However, if that prospectus is able to be
distributed to the shareholders of Biorelease concurrently with
the proxy statement for the meeting of shareholders of Biorelease
called to vote to approve the Merger, then PMC will pay up to
$5,000 of the cost of printing that prospectus and will also pay
the cost of mailing that prospectus to the shareholders of
Biorelease.
8.4 Amendment. Subject to applicable law, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of Biorelease and PMC.
8.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto and (iii) waive compliance with any of the agreements or conditions
for the benefit of such party contained herein. Any agreement on the part of
a party hereto to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. Delay in
exercising any right under this Agreement shall not constitute a waiver of
such right.
ARTICLE 9
GENERAL PROVISIONS
9.1 Non-Survival of Representations and Warranties. The
representations and warranties of PMC and Biorelease contained in this
Agreement shall terminate at the Effective
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Time, and only the covenants that by their terms survive the Effective Time
shall survive the Effective Time.
9.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or sent via telecopy (receipt confirmed) to the
parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like
notice):
(a) if to Biorelease, to:
Biorelease Corporation
304 Granite St., Suite 200
Manchester, N.H. 03102-4004
Attn: Dr. Bruce Reeves, Ph. D., President
Telephone: (603) 641-8443
Fax: (603) 641-9535
with a copy to:
John Lowy, P.C.
645 Fifth Ave., 4th Floor
New York, NY 10022
Attention: John Lowy
Telephone: (212) 371-7799
Fax: (212) 371-8527
(b) if to PMC, to:
Polar Molecular Corporation
4600 S. Ulster Street, Suite 700
Denver, Colorado 80237
Attn: Mark L. Nelson, President
Telephone: (303) 804-3804
Fax: (303) 804-3825
with a copy to:
Berry Moorman P.C.
600 Woodbridge
Detroit, Michigan 48226
Attention: Gary D. Bruhn, Esq.
Telephone: (313) 567-1000
Fax:: (313) 567-1001
9.3 Interpretation. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When reference is made
herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect subsidiaries of such entity.
Reference to
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the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement; Third Party Beneficiaries. This Agreement
and the documents and instruments and other agreements among the parties
hereto as contemplated by or referred to herein, including the PMC Disclosure
Schedule and the Biorelease Disclosure Schedule (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being
understood that the Confidentiality Agreement shall continue in full force
and effect until the Closing and shall survive any termination of this
Agreement; and (b) are not intended to confer upon any other person any
rights or remedies hereunder, except as specifically provided in Section
6.10.
9.6 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.7 Other Remedies; Specific Performance. Except as otherwise
provided herein, any and all remedies herein expressly conferred upon a party
will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly
agreed that the parties shall be entitled to seek an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any
state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of law thereof; provided that issues involving the corporate governance of
any of the parties hereto shall be governed by their respective jurisdictions
of incorporation. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any state or federal court within the Eastern
District of Michigan, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, other than issues
involving the corporate governance of any of the parties hereto, agrees that
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process may be served upon them in any manner authorized by the laws of the
State of Michigan for such persons and waives and covenants not to assert or
plead any objection which they might otherwise have to such jurisdiction and
such process.
9.9 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
9.10 Assignment. No party may assign either this Agreement or any
of its rights, interests, or obligations hereunder without the prior written
approval of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9.11 Waiver of Jury Trial. EACH OF BIORELEASE AND PMC HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF BIORELEASE OR PMC IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
9.12 Amendment of Agreement. The parties agree that, if they can
do so in compliance with the Delaware Law and the Utah Law, all applicable
securities laws and without adverse tax consequences to themselves or to
their shareholders, they will seek to structure the transaction in an
alternative format that will achieve their mutual goals but enable them to
accomplish those goals more quickly. In the event an alternative structure is
agreed to, the parties will amend this Agreement to reflect that alternative
structure.
IN WITNESS WHEREOF, the parties hereto have caused this Amended
and Restated Agreement to be executed by their duly authorized respective
officers this 20th day of December, 1999 but to be effective as of the date
first written above.
POLAR MOLECULAR CORPORATION
By: /s/ Mark L. Nelson
--------------------------------
Mark L. Nelson, President and CEO
BIORELEASE CORPORATION
By: /s/ R. Bruce Reeves
--------------------------------
Dr. R. Bruce Reeves, CEO
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EXHIBIT A
FORM OF POLAR MOLECULAR CORPORATION AFFILIATE AGREEMENT
This AFFILIATE AGREEMENT (the "Agreement") is made and entered
into as of July 26, 1999, between BIORELEASE CORP., a Delaware corporation
("Biorelease"), and the undersigned stockholder (the "Affiliate") of POLAR
MOLECULAR CORPORATION, a Utah corporation (the "Company").
RECITALS
A. Biorelease and the Company have entered into an Agreement and
Plan of Reorganization (the "Merger Agreement") dated as of July 26, 1999
pursuant to which the Company will merge with and into Biorelease (the
"Merger") (capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Merger Agreement);
B. Pursuant to the Merger, at the Effective Time, outstanding
shares of Company Common Stock, including any shares owned by Affiliate, will
be converted into the right to receive shares of Biorelease Common Stock;
C. The execution and delivery of this Agreement by the Affiliate
is a material inducement to Biorelease to enter into the Merger Agreement;
D. It is intended that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986 as
amended (the "Code");
E. The Affiliate has been advised that Affiliate may be deemed to
be an "affiliate" of the Company, as the term "affiliate" is used for
purposes of paragraphs (c) and (d) of Rule 145 of the Rules and Regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission"), as amended, although nothing contained herein shall be
construed as an admission by Affiliate that Affiliate is in fact an
"affiliate" of the Company.
AGREEMENT
NOW, THEREFORE, intending to be legally bound, the parties hereby
agree as follows:
1. COMPLIANCE WITH RULE 145 AND THE SECURITIES ACT.
(a) The Affiliate has been advised that (i) the issuance
of shares of Biorelease Common Stock in connection with the Merger
is expected to be effected pursuant to a Registration Statement on
Form S-4 to be filed with the Commission to register the shares of
Biorelease Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), and as such will not be deemed
"restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act, and resale of such shares will not be
subject to any restrictions other than as set forth in Rule 145
under the Securities Act (which will not apply if such shares are
otherwise transferred pursuant to an effective
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registration statement under the Securities Act or an appropriate
exemption from registration), and (ii) the Affiliate may be deemed
to be an "affiliate" of the Company within the meaning of the
Securities Act and, in particular, Rule 145 promulgated
thereunder. Affiliate accordingly agrees not to sell, transfer, or
otherwise dispose of any Biorelease Common Stock issued to the
Affiliate in the Merger unless (X) such sale, transfer or other
disposition is made in conformity with the requirements of Rule
145(d) promulgated under the Securities Act; (Y) such sale,
transfer or other disposition is made pursuant to an effective
registration statement under the Securities Act; or (Z) the
Affiliate delivers to Biorelease a written opinion of counsel,
reasonably acceptable to Biorelease in form and substance, that
such sale, transfer, or other disposition is otherwise exempt from
registration under the Securities Act. In connection with the
obligations of the Affiliate hereunder, Biorelease agrees to file
all reports required under the Exchange Act to satisfy the
requirements of Rule 144(c) as long as the Affiliate shall be
subject to the requirements of Rule 145.
(b) Biorelease will give stop transfer instructions to
its transfer agent with respect to any Biorelease Common Stock
received by Affiliate pursuant to the Merger, and there will be
placed on the certificates representing such Common Stock, or any
substitutions therefor, a legend stating in substance: "The shares
represented by this certificate were issued in a transaction to
which Rule 145 applies and may only be transferred in conformity
with Rule 145(d), pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or in accordance
with a written opinion of counsel, reasonably acceptable to the
issuer in form and substance, that such transfer is exempt from
registration under the Securities Act of 1933, as amended." The
foregoing legend shall be removed (by delivery of a substitute
certificate without such legend) if the Affiliate delivers to
Biorelease (i) satisfactory written evidence that the shares have
been sold in compliance with Rule 145 (in which case, the
substitute certificate will be issued in the name of the
transferee) or (ii) an opinion of counsel, in form and substance
reasonably satisfactory to Biorelease, to the effect that public
sale of the shares by the holder thereof is no longer subject to
Rule 145.
2. SHARE OWNERSHIP. The Affiliate is the beneficial owner of that
number of shares of Company Common Stock (including shares issuable upon
exercise of stock options and warrants) as set forth on the signature page
hereto (the "Company Securities"). Except for the Company Securities, the
Affiliate does not beneficially own any shares of Company Common Stock or any
other equity securities of the Company or any options, warrants, or other
rights to acquire any equity securities of the Company.
3. MISCELLANEOUS.
(a) For the convenience of the parties hereto, this
Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(b) This Agreement shall be enforceable by, and shall
inure to the benefit of and be binding upon, the parties hereto
and their respective successors and assigns. As
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used herein, the term "successors and assigns" shall mean, where
the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of
the State of Michigan.
(d) If a court of competent jurisdiction determines that
any provision of this Agreement is not enforceable or enforceable
only if limited in time or scope, this Agreement shall continue in
full force and effect with such provision stricken or so limited.
(e) Counsel to the parties to the Merger Agreement shall
be entitled to rely upon this Agreement as appropriate.
(f) This Agreement shall not be modified or amended, or
any right hereunder waived or any obligation excused, except by a
written agreement
signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Affiliate
Agreement as of the date set forth on the first page of this Agreement.
WITNESS: POLAR MOLECULAR CORPORATION
_____________________________ By: ________________________________
Mark L. Nelson, President and CEO
_____________________________ : ________________________________
Name:___________________________
Shares beneficially owned:____________
A-47
ANNEX B
PART 13 OF THE UTAH REVISED BUSINESS CORPORATION ACT REGARDING
DISSENTERS RIGHTS OF PMC SHAREHOLDERS
ss. 16-10a-1301. Definitions
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 16-10a-1302 and who exercises that right when and in the
manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the statutory rate set forth in Section 15-1-1,
compounded annually.
(6) "Record shareholder" means the person in whose name shares are registered
in the records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent the beneficial owner is
recognized by the corporation as the shareholder as provided in Section
16-10a-723.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
ss. 16-10a-1302. Right to dissent
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
from, and obtain payment of the fair value of shares held by him in the event
of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a
party if:
(i) shareholder approval is required for the merger by
Section 16-10a-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is merged with
its parent under Section 16-10a-1104;
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(b) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired;
(c) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of the corporation for
which a shareholder vote is required under Subsection
16-10a-1202(1), but not including a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale
will be distributed to the shareholders within one year after the
date of sale; and
(d) consummation of a sale, lease, exchange, or other disposition of
all, or substantially all, of the property of an entity controlled
by the corporation if the shareholders of the corporation were
entitled to vote upon the consent of the corporation to the
disposition pursuant to Subsection 16-10a-1202(2).
(2) A shareholder is entitled to dissent and obtain payment of the fair value
of his shares in the event of any other corporate action to the extent the
articles of incorporation, bylaws, or a resolution of the board of directors
so provides.
(3) Notwithstanding the other provisions of this part, except to the extent
otherwise provided in the articles of incorporation, bylaws, or a resolution
of the board of directors, and subject to the limitations set forth in
Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (1) of the fair value of the shares of any class or series
of shares which either were listed on a national securities exchange
registered under the federal Securities Exchange Act of 1934, as amended, or
on the National Market System of the National Association of Securities
Dealers Automated Quotation System, or were held of record by more than 2,000
shareholders, at the time of:
(a) the record date fixed under Section 16-10a-707 to determine the
shareholders entitled to receive notice of the shareholders' meeting
at which the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the proposed
corporate action; or
(c) the effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation of the plan
of merger or share exchange;
(b) shares of a corporation which at the effective date of the plan
of merger or share exchange either will be listed on a national
securities exchange registered under the federal
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Securities Exchange Act of 1934, as amended, or on the National
Market System of the National Association of Securities Dealers
Automated Quotation System, or will be held of record by more than
2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection (4), or
cash in lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his shares under
this part may not challenge the corporate action creating the entitlement
unless the action is unlawful or fraudulent with respect to him or to the
corporation.
ss. 16-10a-1303. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name
and address of each person on whose behalf dissenters' rights are being
asserted. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the
other shares held of record by him were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if:
(a) the beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all shares
of which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders, each
beneficial shareholder must certify to the corporation that both he and the
record shareholders of all shares owned beneficially by him have asserted, or
will timely assert, dissenters' rights as to all the shares unlimited on the
ability to exercise dissenters' rights. The certification requirement must be
stated in the dissenters' notice given pursuant to Section 16-10a-1322.
ss. 16-10a-1320. Notice of dissenters' rights
(1) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must be sent to all shareholders of the corporation as of the
applicable record date, whether or not they are entitled to vote at the
meeting. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this
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part. The notice must be accompanied by a copy of this part and the
materials, if any, that under this chapter are required to be given the
shareholders entitled to vote on the proposed action at the meeting. Failure
to give notice as required by this subsection does not affect any action
taken at the shareholders' meeting for which the notice was to have been
given.
(2) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, any written or oral solicitation of a shareholder to
execute a written consent to the action contemplated by Section 16-10a-704
must be accompanied or preceded by a written notice stating that shareholders
are or may be entitled to assert dissenters' rights under this part, by a
copy of this part, and by the materials, if any, that under this chapter
would have been required to be given to shareholders entitled to vote on the
proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give written notice as provided by this
subsection does not affect any action taken pursuant to Section 16-10a-704
for which the notice was to have been given.
ss. 16-10a-1321. Demand for payment -- Eligibility and notice of intent
(1) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken, written
notice of his intent to demand payment for shares if the proposed action is
effectuated; and ss. 16-10a-1321. Demand for payment -- Eligibility and
notice of intent
(1) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken,
written notice of his intent to demand payment for shares if the
proposed action is effectuated; and
(b) may not vote any of his shares in favor of the proposed action.
(2) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is authorized without a meeting of shareholders pursuant to
Section 16-10a-704, a shareholder who wishes to assert dissenters' rights may
not execute a writing consenting to the proposed corporate action.
(3) In order to be entitled to payment for shares under this part, unless
otherwise provided in the articles of incorporation, bylaws, or a resolution
adopted by the board of directors, a shareholder must have been a shareholder
with respect to the shares for which payment is demanded as of the date the
proposed corporate action creating dissenters' rights under Section
16-10a-1302 is approved by the shareholders, if shareholder approval is
required, or as of the effective date of the corporate action if the
corporate action is authorized other than by a vote of shareholders.
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(4) A shareholder who does not satisfy the requirements of Subsections (1)
through (3) is not entitled to payment for shares under this part.
ss. 16-10a-1322. Dissenters' notice
(1) If proposed corporate action creating dissenters' rights under Section
16-10a-1302 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their
shares under this part.
(2) The dissenters' notice required by Subsection (1) must be sent no later
than ten days after the effective date of the corporate action creating
dissenters' rights under Section 16-10a-1302, and shall:
(a) state that the corporate action was authorized and the effective
date or proposed effective date of the corporate action;
(b) state an address at which the corporation will receive payment
demands and an address at which certificates for certificated shares
must be deposited;
(c) inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is
received;
(d) supply a form for demanding payment, which form requests a
dissenter to state an address to which payment is to be made;
(e) set a date by which the corporation must receive the payment
demand and by which certificates for certificated shares must be
deposited at the address indicated in the dissenters' notice, which
dates may not be fewer than 30 nor more than 70 days after the date
the dissenters' notice required by Subsection (1) is given;
(f) state the requirement contemplated by Subsection 16-10a-1303(3),
if the requirement is imposed; and
(g) be accompanied by a copy of this part.
ss. 16-10a-1323. Procedure to demand payment
(1) A shareholder who is given a dissenters' notice described in Section
16-10a-1322, who meets the requirements of Section 16-10a-1321, and wishes to
assert dissenters' rights must, in accordance with the terms of the
dissenters' notice:
(a) cause the corporation to receive a payment demand, which may be
the payment demand form contemplated in Subsection
16-10a-1322(2)(d), duly completed, or may be stated in another
writing;
B-5
(b) deposit certificates for his certificated shares in accordance
with the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice
described in Section 16-10a-1322, as contemplated by Section
16-10a-1327, certify in writing, in or with the payment demand,
whether or not he or the person on whose behalf he asserts
dissenters' rights acquired beneficial ownership of the shares
before the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection (1)
retains all rights of a shareholder except the right to transfer the shares
until the effective date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to receive payment for
the shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share certificates
as required, by the date or dates set in the dissenters' notice, is not
entitled to payment for shares under this part.
ss. 16-10a-1324. Uncertificated shares
(1) Upon receipt of a demand for payment under Section 16-10a-1323 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer of the shares until the proposed corporate action is taken or the
restrictions are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323 apply to
shareholders who own uncertificated shares.
ss. 16-10a-1325. Payment
(1) Except as provided in Section 16-10a-1327, upon the later of the
effective date of the corporate action creating dissenters' rights under
Section 16-10a-1302, and receipt by the corporation of each payment demand
pursuant to Section 16-10a-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenter's shares, plus
interest to each dissenter who has complied with Section 16-10a-1323, and who
meets the requirements of Section 16-10a-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied by:
(a) (i) (A) the corporation's balance sheet as of the end of its
most recent fiscal year, or if not available, a fiscal year ending
not more than 16 months before the date of payment; (B) an income
statement for that year; (C) a statement of changes in shareholders'
equity for that year and a statement of cash flow for that year, if
the corporation customarily provides such statements to
shareholders; and (D) the latest available interim financial
statements, if any;
B-6
(ii) the balance sheet and statements referred to in Subsection (i)
must be audited if the corporation customarily provides audited
financial statements to shareholders;
(b) a statement of the corporation's estimate of the fair value of
the shares and the amount of interest payable with respect to the
shares;
(c) a statement of the dissenter's right to demand payment under
Section 16-10a-1328; and
(d) a copy of this part.
ss. 16-10a-1326. Failure to take action
(1) If the effective date of the corporate action creating dissenters' rights
under Section 16-10a-1302 does not occur within 60 days after the date set by
the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, the corporation shall return all
deposited certificates and release the transfer restrictions imposed on
uncertificated shares, and all shareholders who submitted a demand for
payment pursuant to Section 16-10a-1323 shall thereafter have all rights of a
shareholder as if no demand for payment had been made.
(2) If the effective date of the corporate action creating dissenters' rights
under Section 16-10a-1302 occurs more than 60 days after the date set by the
corporation as the date by which the corporation must receive payment demands
as provided in Section 16-10a-1322, then the corporation shall send a new
dissenters' notice, as provided in Section 16-10a-1322, and the provisions of
Sections 16-10a-1323 through 16-10a-1328 shall again be applicable.
ss. 16-10a-1327. Special provisions relating to shares acquired after
announcement of proposed corporate action
(1) A corporation may, with the dissenters' notice given pursuant to Section
16-10a-1322, state the date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts
dissenters' rights acquired beneficial ownership of the shares before that
date. With respect to any dissenter who does not certify in writing, in or
with the payment demand that he or the person on whose behalf the dissenters'
rights are being asserted, acquired beneficial ownership of the shares before
that date, the corporation may, in lieu of making the payment provided in
Section 16-10a-1325, offer to make payment if the dissenter agrees to accept
it in full satisfaction of his demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-1325(2).
B-7
ss. 16-10a-1328. Procedure for shareholder dissatisfied with payment or offer
(1) A dissenter who has not accepted an offer made by a corporation under
Section 16-10a-1327 may notify the corporation in writing of his own estimate
of the fair value of his shares and demand payment of the estimated amount,
plus interest, less any payment made under Section 16-10a-1325, if:
(a) the dissenter believes that the amount paid under Section
16-10a-1325 or offered under Section 16-10a-1327 is less than the
fair value of the shares;
(b) the corporation fails to make payment under Section 16-10a-1325
within 60 days after the date set by the corporation as the date by
which it must receive the payment demand; or
(c) the corporation, having failed to take the proposed corporate
action creating dissenters' rights, does not return the deposited
certificates or release the transfer restrictions imposed on
uncertificated shares as required by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section unless
he causes the corporation to receive the notice required by Subsection (1)
within 30 days after the corporation made or offered payment for his shares.
ss. 16-10a-1330. Judicial appraisal of shares -- Court action
(1) If a demand for payment under Section 16-10a-1328 remains unresolved, the
corporation shall commence a proceeding within 60 days after receiving the
payment demand contemplated by Section 16-10a-1328, and petition the court to
determine the fair value of the shares and the amount of interest. If the
corporation does not commence the proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in Subsection (1)
in the district court of the county in this state where the corporation's
principal office, or if it has no principal office in this state, the county
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with, or whose shares were acquired by, the
foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether
or not they are residents of this state whose demands remain unresolved,
parties to the proceeding commenced under Subsection (2) as an action against
their shares. All such dissenters who are named as parties must be served
with a copy of the petition. Service on each dissenter may be by registered
or certified mail to the address stated in his payment demand made pursuant
to Section 16-10a-1328. If no address is stated in the payment demand,
service may be made at the address stated in the payment demand given
pursuant to Section 16-10a-1323. If no address is stated in the payment
demand, service may be made at the
B-8
address shown on the corporation's current record of shareholders for the
record shareholder holding the dissenter's shares. Service may also be made
otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced under
Subsection (2) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under Subsection
(2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the fair
value of his shares, plus interest, exceeds the amount paid by the
corporation pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under Section 16-10a-1327.
ss. 16-10a-1331. Court costs and counsel fees
(1) The court in an appraisal proceeding commenced under Section 16-10a-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court
shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds that the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 16-10a-1328.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with
the requirements of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this part.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court
may award to those counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
B-9
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW REGARDING
APPRAISAL RIGHTS OF SHAREHOLDERS
ss. 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this section.
As used in this section, the word "stockholder" means a holder of record of
stock in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of
a member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest
in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264
of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to act
upon the agreement of merger or consolidation, were either (i)
listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of
record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the
surviving corporation as provided in subsection (f) of ss. 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent corporation
if the holders thereof are required by the terms of an agreement of
merger or consolidation pursuant to ss.ss. 251, 252, 254, 257, 258,
263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
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b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of
stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or
consolidation will be either listed on a national
securities exchange or designated as a national market
system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing
subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock,
depository receipts and cash in lieu of fractional shares
or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title
is not owned by the parent corporation immediately prior to the
merger, appraisal rights shall be available for the shares of the
subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for
approval at a meeting of stockholders, the corporation, not less
than 20 days prior to the meeting, shall notify each of its
stockholders who was such on the record date for such meeting with
respect to shares for which appraisal rights are available pursuant
to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each
stockholder electing to demand the appraisal of such stockholder's
shares shall deliver to the corporation, before the taking of the
vote on the merger or consolidation, a written demand for appraisal
of such stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the
merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and
has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has
become effective; or
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(2) If the merger or consolidation was approved pursuant to
ss. 228 or ss. 253 of this title, each consitutent corporation,
either before the effective date of the merger or consolidation or
within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constitutent corporation who are
entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or all
shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be
given by the surviving or resulting corporation to all such holders
of any class or series of stock of a constituent corporation that
are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall,
also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constitutent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of
such constitutent corporation that are entitled to appraisal rights
of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20
days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that
is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders
entitled to receive either notice, each constitutent corporation may
fix, in advance, a record date that shall be not more than 10 days
prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with
the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have
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been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof
shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of
the stockholder entitled to an appraisal. Any stockholder whose name appears
on the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
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case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the
merger or consolidation as provided in subsection (e) of this section or
+9thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing,
no appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
C-5
ANNEX D
FORM OF CHARTER AMENDMENT TO AUTHORIZE 1,000,000 SHARES OF
PREFERRED STOCK AND DESIGNATE 100,000 SHARES AS SERIES A
CONVERTIBLE PREFERRED STOCK
Article Four of the Certificate of Incorporation of Biorelease Corp. would be
replaced with the following if the Charter Amendment and the Reverse Stock
Split are approved.
FOURTH
A. General. The Corporation is authorized to issue a total of
50,000,000 shares of common stock, par value $.01 per share, and 1,000,000
shares of preferred stock.
B. Reverse Split of Common Stock. Effective immediately prior to the
merger of the Corporation and Polar Molecular Corporation, a Utah corporation
on __________, 2000 (the "Split Effective Time"), each share of the
Corporation's common stock that was outstanding or held as treasury shares as
of the Split Effective Time (the "Old Common Stock") shall be automatically
changed and reclassified, as of the Split Effective Time and without further
action, into one twenty fifth (.04) of a fully paid and nonassessable share
of the Corporation's common stock. The Corporation shall not issue fractional
shares on account of that reverse split. Each person who would otherwise be
entitle to receive a fraction of a share of common stock (after aggregating
all fractional shares of common stock that otherwise would be received by
such holder) shall be entitled to receive from the Corporation a number of
shares rounded to the nearest whole share (i.e., fractions of less than .5
will be rounded down and fractions of .5 or more will be rounded up).
C. Preferred Stock.
1. The shares of Preferred Stock authorized by this
Certificate of Incorporation may be issued from time to time in one
or more series. For any wholly unissued series of Preferred Stock,
the Board of Directors is hereby authorized to fix and alter the
dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions),
redemption prices, liquidation preferences, the number of shares
constituting any such series and the designation thereof, or any of
them.
2. For any series of Preferred Stock having issued and
outstanding shares, the Board of Directors is further authorized to
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of such series when
the number of shares of such series was originally fixed by the
Board of Directors, but such increase or decrease shall be subject
to the limitations and restrictions stated in the resolution of the
Board of Directors originally fixing the number of shares of such
series, if any. If the number of shares of any series is so
decreased, then the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution
originally fixing the number if shares of such series.
D-1
D. Series A Preferred Stock.
1. Designations. One Hundred Thousand authorized shares of
Preferred Stock shall be issued in and as a series to be designated
the "Series A 12% Cumulative Convertible Senior Preferred Stock"
(the "Series A Preferred Stock").
2. Rank. Each share of the Series A Preferred Stock shall
have the same relative rights and preferences as, and shall be
identical in all respects with, all other shares of the Series A
Preferred Stock. Except as may be authorized by a vote of the
holders of the Series A Preferred Stock in accordance with Section
5, the Series A Preferred Stock shall rank senior to any other
series of preferred stock now or hereafter issued by the
Corporation.
3. Dividends.
(a) The Series A Preferred Stock will be issued
for $100.00 per share (the "Issue Price"). The holders of
shares of the Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of
the Corporation and out of the assets of the Corporation
legally available therefor, cumulative cash dividends at
the rate per annum of Twelve percent (12%) of the Issue
Price per share, from the date of issuance of such shares
until such shares are converted or redeemed hereunder, and
payable quarterly on the last day of March, June, September
and December in each year, commencing on December 31, 1999.
(b) Notwithstanding the foregoing, during the
period beginning January 1, 2002, if there is an
established trading market for the Corporation's Common
Stock, the Corporation shall have the option to pay the
dividends in the form of shares of the Corporation's Common
Stock rather than in cash. In that event, the shares to be
issued would be valued at fifty percent (50%) of the
Current Market Price Per Share (as defined below) of the
Corporation's Common Stock on the dividend payment date.
For the purpose of this subsection, the Current Market
Price Per Share of Common Stock at any date shall be the
average of the daily closing prices for the twenty (20)
business days before the date of such computation. The
closing price for each day shall be (a) the last reported
sale price regular way or, in case no reported such sale
takes place on such day, the average of the closing bid and
asked prices regular way for such day, in either case on
the principal national securities exchange in the United
States on which the shares are listed or admitted to
trading, or (b) if the shares are not listed or admitted to
trading on any national securities exchange in the United
States, but are traded in the over-the-counter market in
the United States, the average of the closing bid and asked
prices of the Common Stock on NASDAQ, the OTCBB or any
comparable system, or (c) if the Common Stock is not listed
on NASDAQ, the OTCBB or a comparable system, then the
average of the closing bid and asked prices as furnished by
two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Corporation
for that purpose.
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(c) In computing the amount of dividends accrued
in respect of a fraction of a calendar quarter, such amount
shall be pro rated on the basis of a 360-day year. Any
dividends on the Series A Preferred Stock which are not
paid within 30 days after the date upon which payment
thereof is due shall bear interest at the rate of Twelve
percent (12%) per annum from such date until paid.
(d) Dividends on the Series A Preferred Stock
shall be payable before any dividends or distributions
shall be paid upon, or declared and set apart for, any
Junior Stock (as defined below) and before any repurchase,
redemption, retirement or other acquisition for valuable
consideration of any shares of Junior Stock (other than
upon conversion thereof into Common Stock) shall be
effected, so that if in any quarterly dividend period all
dividends at the rate fixed above accrued from the date of
issuance of any shares of the Series A Preferred Stock
shall not have been paid, or declared and set apart for
payment, the deficiency shall be fully paid or set apart
for payment, together with interest thereon as provided
above, before any dividends or distributions shall be paid
upon, or set apart for, or any repurchase, redemption,
retirement or other acquisition for valuable consideration
is effected of, the Junior Stock (other than upon
conversion thereof into Common Stock). As used herein
"Junior Stock" shall mean the Corporation's Common Stock
and each other class or series of the Corporation's capital
stock, whether common or preferred, the terms of which do
not provide that shares of that class or series shall rank
senior to or on a parity with the Series A Preferred Stock
as to distributions of dividends and distributions upon the
liquidation of the Corporation.
4. Preference on Liquidation. The Series A Preferred Stock
shall be preferred with respect to both earnings and assets of the
Corporation. In the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, the
holders of shares of the Series A Preferred Stock shall be entitled,
before any payment or distribution of the assets of the Corporation
shall be made or set apart to the holders of Junior Stock, to
receive from the net assets of the Corporation available for
distribution to shareholders cash in an amount equal to the Issue
Price of such shares, together with any accrued and unpaid dividends
and any other amounts which may be payable with respect to such
shares pursuant to Sections 3 and 6 hereof to the date of final
distribution to the holders of the Series A Preferred Stock. The
holders of shares of the Series A Preferred Stock shall be entitled
to no further participation in any assets of the Corporation. In the
event the holders of the Series A Preferred Stock agree pursuant to
Section 5 to the authorization of any shares of Parity Stock (as
defined in Section 5(a)) and if, upon any liquidation, dissolution
or winding-up of the Corporation, the assets of the Corporation
distributable among the holders of the shares of the Series A
Preferred Stock and the Parity Stock shall be insufficient to permit
the payment in full to such holders of the aforementioned
preferential amounts, then the entire assets of the Corporation or
the proceeds thereof available for that distribution shall be
distributed ratably among the holders of all of the outstanding
shares of the Series A Preferred Stock and the Parity Stock in
proportion to the full preferential amounts to which they are
respectively
D-3
entitled. Neither the consolidation or merger of the Corporation
with or into any other corporation, nor the merger or consolidation
of any other corporation into or with the Corporation, nor the sale,
lease, exchange or conveyance of all or any part of the assets of
the Corporation, shall be deemed to be a dissolution, liquidation or
winding-up of the Corporation for the purposes of this Section 4.
5. Voting. Except as may otherwise be required by law or
the provisions of this Section 5, the holders of shares of the
Series A Preferred Stock shall not be entitled to vote upon any
matter; provided, however, that so long as any shares of the Series
A Preferred Stock shall be outstanding and unless the consent or
vote of a greater number of shares shall then be required by law,
the consent or approval of the holders of at least a majority of the
total number of shares of the Series A Preferred Stock, voting as
one class, at the time outstanding, given in person or by proxy at a
meeting at which the holders of shares of the Series A Preferred
Stock shall be entitled to vote separately as a class, shall be
necessary for effecting or validating each of the following:
(a) The authorization, or any increase in the
authorized amount, of any class or series of capital stock
of the Corporation (i) having any preference or priority as
to dividends or upon liquidation (referred to herein as
"Senior Stock") over the Series A Preferred Stock or (ii)
that shall be equal in right and rank pari passu with the
Series A Preferred Stock as to dividends or upon
liquidation (referred to herein as "Parity Stock") or (iii)
convertible into the Series A Preferred Stock;
(b) The reclassification of any shares of capital
stock into shares of Senior Stock or Parity Stock or into
shares of capital stock of the Corporation convertible into
the Series A Preferred Stock;
(c) The authorization of any security exchangeable
for, convertible into, or evidencing the right to purchase
any shares of Senior Stock or Parity Stock or shares of
capital stock of the Corporation convertible into the
Series A Preferred Stock;
(d) The amendment, alteration or repeal of any
provision of the Articles of Incorporation of the
Corporation or any certificate amendatory thereof or
supplemental thereto, so as to alter or change any of the
preferences, rights or powers of the Series A Preferred
Stock; or
(e) The voluntary liquidation, dissolution or
winding-up of the Corporation, the sale or exchange of all
or substantially all of the assets of the Corporation or
the merger or consolidation of the Corporation with or into
any other corporation; provided, however, that no vote of
the holders of the Series A Preferred Stock as a class
hereunder shall be required in the case of a merger or
consolidation or a sale or exchange of the assets of the
Corporation if: (i) after such transaction, the resulting,
surviving or acquiring corporation shall have no stock
either authorized or outstanding (except such stock of the
Corporation as
D-4
may have been authorized or outstanding immediately
preceding such transaction, or such stock of the resulting,
surviving or acquiring corporation as may be issued in
exchange therefor) ranking prior to, or on a parity with,
the Series A Preferred Stock or the stock of the resulting,
surviving or acquiring corporation issued in exchange
therefor; and (ii) each holder of shares of the Series A
Preferred Stock immediately preceding such transaction
shall continue to hold such shares of the Series A
Preferred Stock or shall receive in exchange therefor the
same number of shares of stock, with substantially the same
preferences, rights and powers, of the resulting, surviving
or acquiring corporation.
6. Redemption.
(a) Redemption by the Corporation. Commencing
January 1, 2005, the Corporation shall have the right, but
not the obligation, to redeem up to One Hundred percent
(100%) of the then outstanding shares of Series A Preferred
Stock at a price of $109.00 per share plus all accrued and
unpaid dividends (and interest, if any) on such shares
through and including the date selected by the Corporation
for such redemption in accordance with this Section 6 (the
"Redemption Date"). In the event of any redemption pursuant
to this Section 6, the Corporation shall determine the
shares to be redeemed by random selection among all of the
outstanding Series A Preferred Stock.
The Corporation shall notify the holders of record
of shares of the Series A Preferred Stock that are to be
redeemed of any such redemption by mailing, by prepaid
certified or registered mail, a written notice of
redemption not less than ten (10) nor more than thirty (30)
days prior to any Redemption Date at their respective
addresses appearing on the stock transfer books of the
Corporation. Any such holder shall be entitled to receive
payment upon such redemption only upon surrender to the
Corporation, at the address set forth in its notice of
redemption, of the certificates representing such holder's
shares of the Series A Preferred Stock called for
redemption by the Corporation. The holders of shares of the
Series A Preferred Stock shall have the right to convert
such shares, in accordance with the provisions of Section 7
hereof, at any time up to the close of business on the
Redemption Date.
(b) Failure to Effect Redemption. In the event
that the Corporation fails to make redemption in full on
any Redemption Date, interest shall accrue and be payable
on the unpaid redemption amount at the rate of Twelve
percent (12%) per annum from such Redemption Date until
paid, and dividends (and interest thereon, if any) shall
continue to be payable on the Series A Preferred Stock as
provided in Section 3 hereof.
(c) Effect of Redemption. On and after any
Redemption Date (unless the Corporation defaults in the
payment or provision for payment (as set forth below) in
respect of such redemption), the holders of shares of the
Series A Preferred Stock being redeemed shall cease to be
shareholders of the Corporation
D-5
with respect to such shares and shall have no interest in
the Corporation by virtue thereof and shall have no voting
or other rights with respect thereto except the right to
receive payment of all amounts payable upon such redemption
as provided in this Section 6, and such shares shall be
deemed to have been redeemed and to be no longer
outstanding. In the event that any certificates
representing any shares of the Series A Preferred Stock
have not on or prior to any Redemption Date been
surrendered to the Corporation for cancellation in exchange
for payment of the redemption price, the Corporation may
set aside, with such escrow agent as shall be designated by
it, sufficient funds to provide for the redemption payment
with respect to such shares to be made upon surrender or
such certificates. No shares of the Series A Preferred
Stock so redeemed shall be reissued or otherwise disposed
of, and no shares of the Series A Preferred Stock shall be
issued in lieu thereof, and the Corporation shall cause all
shares redeemed to be retired and cancelled in the manner
provided by law.
(d) No Sinking Fund. The Series A Preferred Stock
shall not be entitled to the benefit of any sinking fund to
be applied to the redemption thereof.
7. Conversion.
(a) Conversion and Conversion Price. Subject to
the terms and conditions of this Section 7, each of the
holders of shares of the Series A Preferred Stock shall
have the option, at any time and from time to time, to
convert each of such shares into shares of Common Stock at
a rate of one share of Common Stock for each $3.00 of Issue
Price of the shares so converted or, in case an adjustment
of such conversion rate has taken place pursuant to the
further provisions of this Section 7, then at the
conversion rate as last adjusted and in effect at the date
the certificates for such shares of the Series A Preferred
Stock are surrendered for conversion (such price or such
price as last adjusted, as the case may be, being referred
to herein as the "Conversion Price"). In order to exercise
such conversion privilege, any such holder shall surrender
to the Corporation at its principal offices (i) the
certificates for the shares of the Series A Preferred Stock
to be converted, (ii) a notice (a "Conversion Notice") that
such holder elects to convert such shares in accordance
with the provisions of this Section 7(a) and (iii) an
investment letter in form satisfactory to the Corporation
to ensure compliance with the provisions of the Securities
Act of 1933 and applicable state securities laws. In the
event that such holder elects to convert only a portion of
the number of shares of the Series A Preferred Stock
covered by a certificate surrendered for conversion, the
Corporation shall issue and deliver to such holder, a
certificate or certificates for the number of full shares
of the Series A Preferred Stock not converted.
(b) Issuance of Certificates; Time Conversion
Effected. Promptly after the receipt of a Conversion Notice
and surrender of certificates as aforesaid, the Corporation
shall issue and deliver to such holder, registered in such
name or names as such holder may direct, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of the shares surrendered
D-6
therefor. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion
Price shall be determined, as of the close of business on
the date on which the Conversion Notice shall have been
received by the Corporation and such shares of the Series A
Preferred Stock shall have been surrendered as aforesaid,
and at such time the rights of such holder as to such
shares surrendered shall cease and the person in whose name
any certificate or certificates for shares of Common Stock
shall then be issuable upon such conversion shall be deemed
to have become the holder of record of the shares of Common
Stock represented thereby; provided, however, that no such
surrender of such shares or any portion thereof on any date
when the stock transfer books of the Corporation shall be
closed shall be effective to constitute the person entitled
to receive shares of Common Stock upon such conversion as
the record holder of such shares of Common Stock on such
date, but such surrender of such shares or any portion
thereof shall be effective to constitute the person
entitled to receive such shares of Common Stock as the
record holder thereof for all purposes at the opening of
business on the next succeeding business day on which such
stock transfer books are open; provided, however, that such
conversion shall nevertheless be at the Conversion Price in
effect at the close of business on the date when such
Conversion Notice shall have been received by the
Corporation and the certificates for such shares shall have
been surrendered as aforesaid. If the last day for the
conversion of the Series A Preferred Stock at the place of
surrender shall not be a business day, then the last day
for such conversion at such place shall be the next
succeeding business day.
(c) Fractional Shares; Accrued Interest; Partial
Conversion. No fractional shares shall be issued upon
conversion of any of the Series A Preferred Stock and no
payment or adjustment shall be made upon any such
conversion on account of any cash dividends on the Common
Stock issued upon such conversion. At the time of each
conversion of any shares of the Series A Preferred Stock,
the Corporation shall pay in cash all accrued and unpaid
dividends (and interest thereon, if any) on the shares
surrendered for conversion to the date upon which the
conversion is deemed to take place as provided in Section
7(b) hereof. If any fractional interest in a share of
Common Stock would, except for the provisions of the first
sentence of this Section 7(c), be deliverable upon the
conversion of the Series A Preferred Stock, the Corporation
shall deliver a full share thereof in lieu of such
fractional share, at no cost to the holder thereof.
(d) Adjustment of Conversion Price Upon the
Occurrence of Certain Events. The Conversion Price shall be
subject to adjustment as follows:
(i) Stock Splits, Combinations and
Reclassifications. In case the Corporation shall
increase or decrease the number of its issued and
outstanding shares of Common Stock by means of (A)
the payment of a stock dividend; (B) a stock split
or subdivision of shares; (C) a consolidation or
combination of shares; or (D) a reclassification
or recapitalization involving its Common Stock,
then the Conversion Price in
D-7
effect immediately prior thereto shall be adjusted
by dividing (I) the number of shares of Common
Stock outstanding immediately prior to the
occurrence of any of the events described above
multiplied by the Conversion Price in effect
immediately prior to such occurrence, by (II) the
total number of shares of Common Stock outstanding
immediately after such occurrence, so that the
holder of any share of the Series A Preferred
Stock shall be entitled to receive the number of
shares of Common Stock which it would have owned
or have been entitled to receive after the
happening of any of the events described above,
had such holder converted such shares in full
immediately prior to the happening of such event.
As an example, if the Corporation were to declare
a 2-for-1 stock split, then the Conversion Price
would decrease from $3.00 to $1.50 per share. Such
adjustment shall be made whenever any of the
events listed above shall occur. An adjustment
made pursuant to this Section 7(d)(i) shall become
effective immediately after the effective date of
the subdivision, combination or reclassification,
as the case may be.
(ii) Issuance of Assets or Securities on
Common Stock. In case the Corporation shall
distribute to all holders of shares of its Common
Stock evidences of its indebtedness or assets
(excluding cash dividends) or options, rights or
warrants to purchase shares of Common Stock, then
the Conversion Price shall be adjusted by
multiplying the Conversion Price in effect
immediately prior to such distribution by a
fraction, the denominator of which shall be such
Conversion Price and the numerator of which shall
be such Conversion Price less the fair market
value (as determined by the Corporation's then
independent certified accountants) of the portion
of such evidences of indebtedness, assets,
options, warrants, rights or Convertible
Securities attributable to one share of Common
Stock. Such adjustment shall be made whenever any
such distribution is made and shall become
effective retroactively immediately after the
record date for the determination of shareholders
entitled to receive such distribution.
(iii) Intentionally omitted.
(iv) Market Price Adjustment. On a date
that is the later of: (a) December 31, 2000 or (b)
Twelve (12) months after the consummation of the
merger between the Corporation and Polar Molecular
Corporation (the "Adjustment Date"), the
Corporation will adjust the Conversion Price if
the Current Market Price Per Share (as defined in
Section 3(b)) of the Corporation's Common Stock is
less than $3.00 per share. In that event, the
Conversion Price will be adjusted to equal to the
Current Market Price Per Share but not less than
$1.50 per share.
(v) Minimum Adjustments. Notwithstanding
the foregoing, no adjustment of the Conversion
Price shall be made in an amount less than $.001
per share, but any such lesser adjustment shall be
carried forward
D-8
and shall be made at the time and together with
the next subsequent adjustment which together with
any adjustments so carried forward shall amount to
$.001 per share or more, provided that upon any
adjustment of the Conversion Price as a result of
any dividend or distribution payable in Common
Stock or the reclassification, subdivision or
combination of Common Stock into a greater or
smaller number of shares, the foregoing figure of
$.001 per share (or such figure as last adjusted)
shall be adjusted (to the nearest cent) in
proportion to the adjustment in the Conversion
Price.
(vi) Record Date; Treasury Stock. In case
the Corporation shall take a record of the holders
of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other
distribution payable in Common Stock or in
evidences of indebtedness, assets, options,
warrants, rights or Convertible Securities or (B)
to subscribe for or purchase Common Stock, then
such record date shall be deemed to be the date of
the issuance or sale of the shares of Common Stock
deemed to have been issued or sold upon the
declaration of such dividend or the making of such
other distribution or the date of the granting of
such right of subscription or purchase, as the
case may be. The number of shares of Common Stock
outstanding at any given time shall not include
shares owned or held by or for the account of the
Corporation.
(vii) Notice of Adjustment. Upon any
adjustment of the Conversion Price, the
Corporation shall give written notice thereof to
each holder of shares of the Series A Preferred
Stock, which notice shall state the Conversion
Price resulting from such adjustment, setting
forth in reasonable detail the method of
calculation and the facts upon which such
calculation is based.
(e) Reorganization, Reclassification,
Consolidation, Merger or Sale. If any capital
reorganization or reclassification of capital stock of the
Corporation, or any consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation,
shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby any holder of
shares of the Series A Preferred Stock shall thereafter
have the right to receive upon the basis and upon the terms
and conditions specified herein and in lieu of the shares
of the Common Stock of the Corporation immediately
theretofore receivable upon the conversion of shares of the
Series A Preferred Stock, such shares of stock, securities
or assets as may be issued or payable with respect to or in
exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock
immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or
sale not taken place, and
D-9
in any such case appropriate provision shall be made with
respect to the rights and interests of such holder to the
end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion
Price) shall thereafter be applicable, as nearly as may be,
in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion
rights (including an immediate adjustment, by reason of
such consolidation or merger, of the Conversion Price to
the value of the Common Stock reflected by the terms of
such consolidation or merger if the value so reflected is
less than the Conversion Price in effect immediately prior
to such consolidation or merger). The Corporation shall not
effect any such consolidation, merger or sale, unless prior
to the consummation thereof the successor corporation (if
other than the Corporation) resulting from such
consolidation or merger or the Corporation purchasing such
assets shall assume by written instrument executed and
mailed or delivered to any holder of the Series A Preferred
Stock the obligation to deliver thereto such shares of
stock, securities or assets as, in accordance with the
foregoing provisions, any holder may be entitled to
receive. If a purchase, tender or exchange offer is made to
and accepted by the holders of more than Fifty percent
(50%) of the outstanding shares of Common Stock of the
Corporation, the Corporation shall not effect any
consolidation, merger or sale with the person having made
such purchase, tender or exchange offer or with any
affiliate of such person, unless prior to the consummation
of such consolidation, merger or sale each holder of the
Series A Preferred Stock shall have been given a reasonable
opportunity to then elect to receive on conversion thereof
either the stock, securities or assets then issuable with
respect to the Common Stock or the stock, securities,
assets, or the equivalent, issued to previous holders of
the Common Stock in accordance with such purchase, tender
or exchange offer.
(f) Notices. In case at any time:
(i) The Corporation shall declare any
cash dividend upon its Common Stock;
(ii) The Corporation shall declare any
dividend upon its Common Stock payable in stock or
make any special dividend or other distribution
other than regular cash dividends to holders of
its Common Stock;
(iii) The Corporation shall offer for
subscription pro rata to the holders of its Common
Stock any additional shares of stock of any class
or other rights;
(iv) There shall be any capital
reorganization, or reclassification or the capital
stock of the Corporation, or consolidation or
merger of the Corporation with, or sale of all or
substantially all of its assets to, another
corporation; or
D-10
(v) There shall be a voluntary or
involuntary dissolution, liquidation or winding-up
of the Corporation;
then, in any one or more of such cases, the Corporation
shall give to each holder of the Series A Preferred Stock
(A) at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend,
distribution or subscription rights or for determining
rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (B) in the case of any such
reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding-up, at least 20
days' prior written notice of thee date when the same shall
take place. Such notice in accordance with the foregoing
clause (A) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled
thereof, and such notice in accordance with the foregoing
clause (B) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding-up as the
case may be.
(g) Stock to be Reserved. The Corporation shall at
all times reserve and keep available, free from preemptive
rights out of its authorized but unissued Common Stock or
its issued Common Stock held in treasury, or both, solely
for the purpose of issue upon the conversion of the Series
A Preferred Stock herein provided, such number of shares of
Common Stock as shall then be issuable upon the conversion
thereof. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to
effect the conversion of the Series A Preferred Stock, the
Corporation shall take such corporate action as may in the
opinion of its counsel be necessary to increase its
authorized but unissued Common Stock to such number of
shares as shall be sufficient for that purpose. The
Corporation covenants and agrees that all shares of Common
Stock which shall be so issuable shall, upon issuance, be
duly authorized and validly issued, fully paid and
nonassessable and free from all preemptive rights of
shareholders and liens and charges with respect to the
issue thereof. The Corporation shall not take any action
which results in any adjustment of the Conversion Price if
the total number of shares of Common Stock issuable after
such action upon conversion of the Series A Preferred Stock
would exceed the total number of shares of Common Stock
then authorized by the Corporation's Articles of
Incorporation. The Corporation shall take all such action
as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any
applicable law or regulation, any requirements of any
exchange upon which the Common Stock of the Corporation may
be listed, the charter of bylaws of the Corporation, or any
agreement, instrument or order to which the Corporation or
any of its subsidiaries is then subject.
D-11
(h) Issue Tax. The issuance of certificates for
shares of Common Stock upon conversion of the Series A
Preferred Stock and the issuance of certificates for shares
of the Series A Preferred Stock upon the conversion of only
a portion of the number of shares of the Series A Preferred
Stock covered by a certificate therefor, shall be made
without charge to any holder thereof for any issuance tax
in respect thereto, provided that the Corporation shall not
be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of
any certificate in a name other than that of such holder.
(i) Listing. If any shares of Common Stock
required to be reserved for purposes of conversion of the
Series A Preferred Stock hereunder require listing on any
securities exchange, before such shares may be issued upon
conversion, the Corporation shall, at its expense and as
expeditiously as possible, use its best efforts to cause
such shares to be duly listed on such securities exchange.
8. Certificates. So long as any shares of the Series A
Preferred Stock are outstanding, there shall be set forth on the
face or back of each stock certificate issued by the Corporation a
statement that the Corporation shall furnish without charge to each
shareholder who so request, the powers, preferences and rights of
each class of stock or series thereof and the qualifications,
limitations or restrictions or such preferences or such rights.
D-12
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Restated Certificate of Incorporation and By-Laws of the Registrant
provide that the Registrant shall indemnify any person to the full extent
permitted by the Delaware General Corporation Law (the "DGCL"). Section 145
of the DGCL, relating to indemnification, is hereby incorporated herein by
reference.
Item 21. Exhibits and Financial Statements Schedules.
(a) The following is a list of Exhibits filed herewith as a part
of this Registration Statement:
Exhibit No. Description of document
- ----------- -----------------------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
July 26, 1999, by and among Biorelease Corp and Polar
Molecular Corporation, attached as Annex A to the Joint Proxy
Statement/Prospectus contained in this Registration Statement.
3.1 Certificate of Incorporation of Biorelease(1)
3.2 Amendment to Certificate of Incorporation of Biorelease filed
on November 2, 1992 (1)
3.3 Amendment to Certificate of Incorporation of Biorelease filed
on July 20, 1995 (1)
3.3 By-Laws of Biorelease(1)
4.1 Form of Proposed Amendment to the Certificate of Incorporation
of Biorelease Corp. to reverse split currently outstanding
shares of common stock and authorize preferred stock. This is
attached as Annex D to the Joint Proxy Statement/Prospectus.
4.2 Form of Class A Warrant of Biorelease(2)
5.1 Legal Opinion of John B. Lowy P.C. regarding the legality of
the shares of Biorelease Common Stock being exchanged for
shares of PMC Common Stock (2)
8.1 Form of Tax Opinion of Berry Moorman P.C. (2)
10.1 Reaffirmation and Modification of Patent Assignment and
Royalty Agreements dated as of February 3, 1999 between Otis
L. Nelson, Jr., Mark L. Nelson and A. Richard Nelson and Polar
Molecular Corporation and amendment thereto.
10.2 Agreement dated June 1, 1995 between Polar Molecular
Corporation and Grow Group, Inc.(2)
10.3 License Agreement dated June 21, 1990 by and between Alox
Corporation and Polar Molecular Corporation(2)
10.4 Office Lease dated January 15, 1997 between Omnioffices/Denver
Tech, Inc as lessor and Polar Molecular Corporation as lessee,
including amendments thereto.
10.5 Polar Molecular Corporation 1997 Employees Incentive Stock
Option Plan
II-1
21 Subsidiaries of the Registrant
23.1A Independent Auditors' Consent in connection with Biorelease
Corp. financial statements for the year ended June 30, 1999
23.1B Independent Auditors' Consent in connection with
Biorelease Corp. financial statements for the year ended
June 30, 1998
23.2 Independent Auditors' Consent in connection with Polar
Molecular Corporation
23.3 Consent of John B. Lowy, P.C. (included in Exhibit 5.1)
23.4 Consent of Berry Moorman P.C. (included in Exhibit 8.1).
99.1 Form of Biorelease Corp. Proxy Card. (2)
99.2 Form of Polar Molecular Proxy Card. (2)
99.6 Consents of persons named to become directors of Biorelease
Corp.. who have not signed this Registration Statement. (2)
- -------
(1) Previously filed with the Commission as an Exhibit to the Registration
Statement on Form S-1, as amended, file No. 33-43976 and, by this
reference, incorporated herein.
(2) To be filed by amendment.
Item 22. Undertakings.
(a) Biorelease Corp. hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in
the information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
II-2
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating to the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(b) Biorelease Corp. hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) Biorelease Corp. hereby undertakes to supply by means of a post-effective
amendment all information concerning this transaction and Polar Molecular
Corporation, that was not the subject of and included in the registration
statement when it became effective
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of Biorelease Corp. pursuant to the foregoing provisions, or otherwise,
Biorelease Corp. has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Biorelease Corp. of expenses incurred or paid by a
director, officer or controlling person of Biorelease Corp. in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, Biorelease Corp. will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Manchester, State of
New Hampshire, on January 17, 2000.
---
BIORELEASE CORP
By: /s/ R. Bruce Reeves
--------------------------
R. Bruce Reeves, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ R. Bruce Reeves President January 17, 2000
- ------------------------ ---
R. Bruce Reeves
/s/ Kevin McGuire Principal Financial Officer January 17, 2000
- ------------------------ ---
Kevin McGuire
/s/ Richard F. Schubert Director January 17, 2000
- ------------------------ ---
Richard F. Schubert
/s/ Richard Whitney Director January 17, 2000
- ------------------------ ---
Richard Whitney
REAFFIRMATION AND MODIFICATION OF
PATENT ASSIGNMENT AND ROYALTY AGREEMENTS
THIS AGREEMENT entered into as of the 3rd day of February 1999, by
and between OTIS L. NELSON, JR., MARK L. NELSON, and A. RICHARD NELSON,
(collectively, the "Nelsons"), on the one hand, all with an address of Mark
L. Nelson c/o Polar Molecular Corporation, 4600 S. Ulster Street, Suite 700,
Denver, Colorado 80237, and POLAR MOLECULAR CORPORATION, a Utah corporation
("PMC"), with an address at 4600 S. Ulster Street, Suite 700, Denver,
Colorado 80237.
W I T N E S S E T H
WHEREAS, Otis L. Nelson, Jr. and Mark L. Nelson, the joint inventors
in the U.S. patents identified in Exhibit A attached hereto, have assigned to
PMC the entire right, title and interest in and to said U.S. patents and any
and all corresponding foreign patents and patent applications by assignment
documents recorded in the U.S. Patent Office at Reel 4833 and Frames 979
through 982; and
WHEREAS, Otis L. Nelson, Jr., Mark L. Nelson and A. Richard Nelson,
the joint inventors in the U.S. Application Ser. No. 07/488,670 filed
March 5, 1990 (abandoned) and the foreign patents and patent applications
corresponding thereto identified in Exhibit B, attached hereto, have assigned
to PMC the entire right, title and interest in and to said U.S. application.
and patents issued thereon and said foreign patents and patent applications
and any and all foreign patents which may be granted on said applications by
an Assignment document recorded in the U.S. Patent Office at Reel 5281, Frame
703 through 705; and
WHEREAS, Otis L. Nelson, Jr., Mark L. Nelson and A. Richard Nelson,
the joint inventors in U.S. Ser. No. 08/472,179 filed June 7, 1995 have
assigned to PMC the entire right, title and interest in and to said U.S.
Ser. No. 472,179 by an assignment document dated February 3, 1999 attached
hereto as Exhibit C; and
WHEREAS, Otis L. Nelson, Jr. and Mark L. Nelson, on the one hand,
and PMC, on the other hand, entered into an Agreement as of the February 21,
1986 ("Prior Agreement"); and
-2-
WHEREAS, Otis L. Nelson, Jr. and Mark L. Nelson, on the one hand,
and PMC, on the other hand, desire to supersede said Prior Agreement and all
other agreements between the two parties which were entered into prior to
February 3, 1999 and which relate to assignment of patents; and
WHEREAS, Otis L. Nelson, Jr., Mark L. Nelson and A. Richard Nelson,
on the one hand, and Polar Molecular Corporation, on the other hand, desire
to supersede all agreements between the two parties which were entered into
prior to February 3, 1999 and which relate to assignment of patents;
NOW THEREFORE, in consideration of the mutual promises and for other
good and valuable consideration the parties hereby agree as follows:
ARTICLE I - DEFINITIONS
1.1 As used herein, "Assigned Patents" means (a) the U.S. Patents
identified in Exhibit A attached hereto, (b) the foreign patents and patent
applications identified in Exhibit B attached hereto and all patents granted
on such patent applications and (c) the U.S. patent application identified in
Exhibit C attached hereto and any patent issued thereon or on any division,
continuation or continuation-in-part of said U.S. patent application and any
reissues of said patents.
1.2 As used herein the term "Royalty Period" means the time period
extending from January 1, 1995 until the expiration of the last to expire
patent of the Assigned Patents.
ARTICLE II - AFFIRMATION OF ASSIGNMENTS
2.1 The Nelsons hereby affirm, individually and collectively, that
they have assigned to PMC the entire right, title and interest in and to the
U.S. patents identified in Exhibit A attached hereto and any and all
corresponding foreign patents and patent applications by assignment
documents, recorded in the U.S. Patent office at Reel 4833, Frames 979-982
and have assigned all right, title and interest in and to the foreign patents
and patent applications identified in Exhibit B attached hereto and any and
all foreign patents which may be granted on said applications by an
assignment document recorded in the U.S. Patent office at Reel 5281, Frame
703-705 and have assigned all
-3-
right, title and interest in and to U.S. Ser. No. 08/472,179 by an assignment
document attached hereto as Exhibit C.
ARTICLE III - PAYMENTS
3.1 In consideration of the royalty amounts to be paid under Section
3.3 hereof, PMC shall pay Nelsons $2,000,000. PMC will grant to the Nelsons a
security interest in the Assigned Patents that will guarantee payment to the
Nelsons of the amounts required by this Agreement.
3.2 PMC shall give the Nelsons the right to buy 8,200,000 shares of
Polar Molecular Corporation common stock for 0.01 cents per share, such right
being exercisable at any time after execution of this Agreement.
3.3 PMC shall also pay the Nelsons 10% of licensing fees received
during the Royalty Period by PMC on products covered by the Assigned Patents
plus 10% of pre-tax profits where, for purposes of this Agreement, "pre-tax
profits" means the profits of PMC during the Royalty Period which are derived
from sales of products covered by the Assigned Patents but not including
licensing fee receipts.
3.4 All payments due to the Nelsons pursuant to Section 3.3 shall be
paid within 30 days after the end of each quarter of the fiscal year of 2MC
and such payments shall be made by check payable to Mark L. Nelson. In the
event of a late payment by PMC, interest shall accrue on the unpaid amount
and be compounded annually at an annual percentage rate equal to the prime
rate of the Norwest Bank of Colorado, N.A., Denver, Colorado commencing on
the due date of the late payment.
3.5 PMC agrees to keep accurate records and books of account showing
all information necessary for the accurate determination of the payments due
the Nelsons hereunder, which records and books of account shall be open. to
inspection at reasonable intervals during regular business hours by the
Nelsons or an independent certified public accountant retained by the Nelsons
for the purpose of verifying PMC's payment obligations pursuant to this
Agreement.
-4-
ARTICLE IV - PREVIOUS AGREEMENTS
4.1 On the effective date of this Agreement, the Prior Agreement and
all other agreements oral or written between any of the Nelsons and PMC which
relate to assignment of patents and which were entered into prior to
February 3, 1999 are hereby terminated and shall have no force and effect and
are superseded by this Agreement.
ARTICLE V - MISCELLANEOUS PROVISIONS
5.1 Any notice required by this Agreement or given in connection
with it, shall be in writing to the address given below and shall be
effective on the day it is received and shall be given to the appropriate
party by personal delivery or by certified mail, postage prepaid, or by a
recognized overnight delivery service.
(a) notices to the Nelsons; shall be addressed to Mark L. Nelson
c/o Polar Molecular Corporation, 4600 S. Ulster Street, Suite
700, Denver, Colorado 80237 or to such address as specified by
the Nelsons in a written notice to PMC; and
(b) notices to PMC shall be addressed to Polar Molecular
Corporation, 4600 S. Ulster Street, Suite 700, Denver,
Colorado 80237 or to such address as specified by PMC in a
written notice to the Nelsons.
5.2 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors, heirs, legal
representatives and assigns.
5.3 This Agreement contains the entire understanding and agreement
between the parties regarding the matters to which this Agreement relates.
There are no representations, warranties, promises, covenants, or
understandings other than those herein expressly set forth.
5.4 The parties hereto agree and acknowledge that the inventions,
patents and patent applications are unique assets, and for that reason, among
others, the parties hereto will be irreparably damaged in the event that this
Agreement is not specifically enforced. Therefore, should any dispute arise
-5-
concerning the delivery or transfer of all or any of the patents or patent
applications as required by the terms of this Agreement, an injunction may be
issued mandating the specific performance of the applicable terms of this
Agreement, without the posting of a bond therefor. Such remedy shall,
however, be cumulative and not exclusive of any other remedy which the
parties may have under law.
5.5 This Agreement is made pursuant to and shall be construed under
the laws of the State of Michigan.
5.6 Any controversy or claim arising out of or relating to this
Agreement or the breach thereof shall be settled by Arbitration in accordance
with the rules of the American Arbitration Association, and judgment upon the
award of the Arbitrator or Arbitrators may be entered in any court having
jurisdiction thereof.
IN WITNESS WHEREOF, the parties hereto either for themselves, or by
their duly authorized agents, have hereunto set their hands and seals on the
day and year first above written
ATTEST:
OTIS L. NELSON, JR.
/s/ Paul ?????? /s/ Otis L. Nelson, Jr.
- -------------------------------- ---------------------------
ATTEST:
MARK L. NELSON
/s/ Joseph Michael Sheilds /s/ Mark L. Nelson
- -------------------------------- ---------------------------
ATTEST:
A. RICHARD NELSON
/s/ Ruth Daretta /s/ A. Richard Nelson
- -------------------------------- ---------------------------
ATTEST:
POLAR MOLECULAR CORPORATION
/s/ Joseph Michael Shields /s/ Mary A. Stuart
- -------------------------------- ---------------------------
By:
Title: VP Admin. Svcs.
-6-
EXHIBIT A to
REAFFIRMATION AND MODIFICATION OF
PATENT ASSIGNMENT AND ROYALTY AGREEMENTS
UNITED STATES PATENTS
PATENT NO. TITLE ISSUED
- ---------- ----- ------
4,516,981 RESIDUAL OIL SLUDGE DISPERSANT 5/14/85
4,613,340 RESIDUAL OIL SLUDGE DISPERSANT 9/23/86
4,673,411 ANTI-GEL FUEL ADDITIVE 6/16/87
4,753,661 FUEL CONDITIONER 6/28/88
4,846,847 ANTI-GEL FUEL COMPOSITION 7/11/89
-7-
EXHIBIT B to
REAFFIRMATION AND MODIFICATION OF
PATENT ASSIGNMENT AND ROYALTY AGREEMENTS
FOREIGN PATENTS/PATENT APPLICATIONS
Country Title Ser. No.1/ Pat. No.1
Filing Dt. Issue Dt.
- ------- ----- ---------- ---------
Australia MOTOR FUEL ADDITIVE COMPOSITION 74846/91 660,608
AND METHOD FOR PREPARATION 3/05/91 3/05/91
THEREOF
Brazil PI 9106137
3/05/91
Canada 2,077,666
3/05/91
EPC Countries Include: 91/905918.8 0 518 966
3/05/91 12/27/95
Austria, Belgium, Britain,
Denmark, France, Germany,
Greece, Italy, Luxembourg,
Netherlands, Spain, Sweden
and Switzerland
Japan 3-506077
3/05/92
South Korea 92-702149
9/05/92
-8-
EXHIBIT C to
REAFFIRMATION AND MODIFICATION OF
PATENT ASSIGNMENT AND ROYALTY AGREEMENTS
A S S I G N M E N T
For the sum of one -Dollar ($1.00) and other good and valuable
consideration, receipt of which is hereby acknowledged, we, A. Richard
Nelson, Mark L. Nelson, and Otis L. Nelson, Jr., of Suttons Bay, Michigan,
Aurora, Colorado, and Lake Lelanau, Michigan, effective February 3, 1999, do
hereby assign, sell and set over to Polar Molecular Corporation, of Denver,
Colorado, hereinafter referred to as the Assignee, its successors, assigns or
legal representatives, the entire right, title and interest, in and to the,
inventions and discoveries in "MOTOR FUEL ADDITIVE COMPOSITION AND METHOD FOR
PREPARATION THEREOF", as set forth in the Application for United States
Letters Patent Serial No. 08/472,179, filed June 7, 1995, including the right
of said Assignee, its successors, assigns or other legal representatives to
receive Letters Patent for said inventions and discoveries in its or their
own name or names, at its or their election.
And we hereby agree for ourselves, heirs, successors, assigns or
other legal representatives to execute all papers, and to perform any and all
acts which said Assignee, its successors, assigns or other legal
representatives may deem necessary to secure thereto the rights herein
assigned, sold and set over.
And we hereby represent and warrant that we have not granted any
rights inconsistent with the rights granted herein.
/s/ A. Richard Nelson /s/ Mark L. Nelson
- ---------------------------------- ----------------------------------
A. Richard Nelson Mark L. Nelson
/s/ Otis L. Nelson, Jr.
- ----------------------------------
Otis L. Nelson, Jr.
STATE OF Florida )
----------
)ss
COUNTY OF Pinellas )
----------
On this 18 day of February, 1999, personally appeared before me
A. Richard Nelson, to me known to be the person named in and who executed the
above instrument, and acknowledged
/s/ Ruth Darretta
RUTH DARRETTA
[notary stamp] WHO IS MADE PERSONALLY KNOWN TO ME OR WHO
MY COMMISSION # CC 685395 PRODUCED A D.L. AS ???? AND WHO DID/DID NOT
EXPIRES: October 2, 2001 ---------------
Bonded Thru Notary Public ???????????
Underwriters Michigan DL
-9-
that he executed the same for the uses and purposed therein mentioned.
--------------------------
Notary Public
(SEAL)
STATE OF Colorado )
----------
City & )ss
COUNTY OF Denver )
----------
On this 17th day of February, 1999, personally appeared before me,
Mark L. Nelson, to me known to be the person named in and who executed
the above instrument, and acknowledged that he executed the same for the
uses and purposed therein mentioned.
/s/ Joseph Michael Sheilds
--------------------------
Notary Public
JOSEPH MICHAEL SHIELDS
NOTARY PUBLIC
(SEAL) STATE OF COLORADO
My Commission Expires Jan. 27, 2001
[notary stamp]
STATE OF Michigan )
--------------
)ss
COUNTY OF Grand Traverse)
--------------
On this 23rd day of February, 1999, personally appeared before me Otis L.
Nelson, Jr., to me known to be the person named in and who executed the above
instrument, and acknowledged that he executed the same for the uses and
purposed therein mentioned.
/s/ Teresa K. Cunningham
--------------------------
Notary Public
TERESA K. CUNNINGHAM, Notary Public
Grand Traverse County, Michigan
(SEAL) My Commission Expires: march 2, 2002
CORRECTION OF TYPOGRAPHICAL ERROR
This Correction of Typographical Error is made as of May 26, 1999.
The agreements listed in Items I through 6 below were entered into during the
period July 1, 1997, through February 3, 1999. Each of the agreements makes
reference to "options to acquire" or "right to buy" shares of the common
stock of Polar Molecular Corporation, at a purchase price of $0.01 per share.
The purchase price of $0.01 per share stated in these agreements is a
typographical error and the correct purchase price is $0.001 per share.
A counterpart of this document is appended to each of the agreements
to supersede the typographical error of $0.01 per share and correct the
purchase price of the shares subject to the agreements to reflect $0.001 per
share.
1. Exclusive License Agreement and Amendment to Exclusive License
Agreement, both effective the 1st day of July, 1997, among
Otis L. Nelson, Jr., Mark L. Nelson, and Alfred Richard Nelson
("the Nelsons"), and Polar Molecular Corporation ("PMC");
2. Consolidated Exclusive License Agreement, effective the 1st
day of July, 1997, among the Nelsons and PMC, for the purpose
of consolidating and superseding the Agreement and Amendment at
Item I above;
3. Reallocation Agreement and Amendment to Reallocation Agreement,
effective the 10th day of January, 1998, among the Nelsons;
4. Individual Assignment of Options documents dated January 10,
1998, from Mark L. Nelson, Grantor, to the following
individuals as the respective Grantee:
Joseph Covello
Walter A. Fay
John Loveall
William Morgan
Richard Socia
Charles Uray, Jr;
5. Individual Acknowledgment of options documents dated
January 10, 1998, from Polar Molecular Corporation, Grantor, to
the following individuals as the respective Grantee:
Otis L. Nelson, Jr.
A. Richard Nelson; and
6. Reaffirmation and Modification of Patent Assignment and Royalty
Agreements entered into as of the 3rd day of February, 1999,
among the Nelsons and PMC.
OMNIOFFICES(R)
Agreement for Office Space
This Agreement made January 15, 1997 by and between OMNIOFFICES/Denver Tech,
Inc. ("Lessor") having offices at Suite 700 in that certain building located
at 4600 South Ulster Street, Denver, CO 80237 (the "Building") and Polar
Molecular Corporation ("Lessee") a Corporation (corporation, partnership,
individual) whose address is 1175 South Rifle Circle, Aurora, CO 80017. The
parties for themselves, their heirs, legal representatives, successors and
assigns, agree as follows:
1. Demise and Description of Property. Lessor leases to Lessee, and
Lessee leases from lessor, the space hereinafter referred to as the "Premises,"
being a part of the Lessor's larger space, hereinafter referred to as the
"Facility," the Building, for the term, and subject to the conditions and
covenants hereinafter set forth, and all encumbrances, restrictions, zoning
laws and governmental or other regulations or statutes affecting the Building,
the Facility, or Premises and being more particularly described as follows:
The Premises being office space number(s) *772* *737* *771*, having a
maximum occupancy capacity of 3 person(s). Lessor hereby grants Lessee
the privilege to use in common with other lessee and parties that Lessor
may designate, certain office amenities located in the Facility, The
Amenities are more particularly described in attached Schedule "A."
2. Use. (a) The Premises shall be used by Lessee for business
development and research and such other use as is normally incident thereto
and for no other purpose, in accordance with the rules and regulations
attached and those which may be promulgated for the mutual benefit of Lessor
and its similarly situated lessees. Additionally, Lessee shall not offer at
the Premises any of the services which Lessor provides to its other lessees,
including, but not limited to, those amenities or services describe in
Schedules "A" and "B" attached. In the event Lessee breaches any provision of
this paragraph, Lessee shall be in default hereunder and Lessor shall be
entitled to exercise any rights or remedies under Section 9 below, and in
addition to such rights or remedies, Lessee shall pay Lessor the sum of
$300.00 per week as liquidated damages for each such breach so long as such
breach continue.
(b) Lessee will not make or permit to be made any use of the Premises
which would violate any of the terms of this Agreement or which directly or
indirectly is forbidden by public law, ordinance or government regulation or
which may be dangerous to life, limb, or property, or which may invalidate or
increase the premium of any policy of insurance carried on the Building or on
Lessor's Facility, or which will suffer or permit the Premises to be used in
any manner or anything to be brought into (or kept there) which, in the
judgment of Lessor, shall in any way impair or interfere with or tend to
impair or interfere with any of the services performed by the Lessor for the
Lessee or for others.
3. Term. The Term of this Agreement shall be for a period of Twelve (12)
months commencing on January 15, 1997, and ending on January 14, 1998, unless
renewed as provided below.
4. Rent. For and during the term of this Agreement, Lessee shall pay
Lessor as rent for the Premises a total annual rental of Forty Thousand One
Hundred Forty Dollars and no/100 ($40,140.00), payable in equal monthly
installments of $3,345.00 each in advance on the first day of each calendar
month after the commencement of the term, or a prorated amount for any
partial calendar month during the term. The first such payment of rental as
well as the payment of the Deposit as set forth in Section 5 and prepayment
of Schedule B costs as set forth and defined in Section 6 shall be paid by
Lessee simultaneously with execution of this Agreement.
The rental payable during the term of this Agreement and as increased
pursuant to this Section shall be increased on the first day of the month
following notification of a rental increase (however designated), including
without limitations increases in direct expenses to Lessor by the Building
pursuant to the main lease in effect between the Building and Lessor, or of
an increase in utility charges by the appropriate utility company(s), if
billed to Lessor separately, by the same percentage as the percentage
increase in Lessor's rental under the main lease or in Lessor's utility
charges. The term "direct expenses" as used herein shall refer to the same
items and costs as are used by the Building in its determination of expenses
and costs passed on to Lessor. The statement of the Building as to the amount
of such direct expenses, if accepted by Lessor, shall be binding upon both
Lessor and Lessee.
In the event Lessor receives notice from the Building of any increase,
the effective date of which is prior to the date of notification, Lessor
shall immediately notify Lessee in Writing of such retroactive increase, and
shall bill Lessee for its pro rata share thereof; which bill Lessee shall pay
upon such notification. This Provision shall not, however, limit the
obligation of Lessee to pay on a monthly basis any increase in future rents
caused by the increase in rents charged Lessor under the main lease
Upon the ending date set forth herein, or any extension thereof, the
Agreement shall be extended for the same period of time as the initial term
and, upon the same terms and conditions as contained herein, unless either
party notifies the other in writing by certified or registered mail, return
receipt requested, that the Agreement will not be extended within the period
hereinafter specified. If Lessee has less than three offices, such notice
must be given at least sixty (60) days prior to the expiration date of this
Agreement. If Lessee has three or more offices, such notice must be given at
least ninety (90) days prior to the expiration date of this Agreement.
If Lessor for any reason cannot deliver possessions of the Premises to
the Lessee at the commencement of the term, this Agreement Shall not be void
or Voidable nor shall Lessor be liable to the tenant for any loss or damage
resulting therefrom, but there shall be an abatement of rent for the period
between the stated term commencement and the time when Lessor does deliver
possession.
5. Receipt of Deposit. Lessee as of its execution of this Agreement
deposited with Lessor the sum of $3,345.00 ("Deposit") the receipt of which
is acknowledged by Lessor, as security for the full performance by Lessee of
the aforementioned terms, conditions and covenants of this Agreement to be
performed and kept, as well as for the cost of any repair or collection of
damage in excess of normal wear and tear. If Lessee defaults with respect to
the performance of any of the terms of this Agreement, Lessor may use or
apply all or any part of the Deposit to cure such default and Lessee shall
promptly upon notice reimburse Lessor for any portion of the Deposit that
Lessor shall from time to time so apply. The Deposit or any balance thereof
shall be returned within sixty (60) days after Lessee has vacated and left
the Premises in an acceptable condition (following a personal inspection by
Lessor), surrendered all keys, and paid all rental and other charges
hereunder. If Lessor determines that there is any loss, damage or injury
chargeable to Lessee hereunder, Lessor, at its option, may retain said
Deposit or may apply the sum against any actual loss, damage or injury and
the balance thereof will be the responsibility of Lessee. It is further
understood that the Deposit is not to be considered nor used as the last
rental payment under this Agreement.
6. Prepayment of Schedule B Services. In addition to the rental amount
set forth in Section 4 and the Deposit set forth in Section 5 of this
Agreement, Lessee shall upon its execution of this Agreement pay to Lessor
the sum of $3,345.00 which amount represents an Expense Deposit to be applied
against the cost of supplying Lessee with the Schedule B services, pursuant
to the procedure set forth in Section 7 of this Agreement. In addition,
Lessee agrees that Deposit to cure any default by Lessee hereunder. Any
remaining balance of the Expense Deposit after the end of the term of this
Agreement shall be returned to Lessee in the same manner and within the same
period as the Deposit.
7. Services. Provided Lessee is not in default hereunder, Lessor shall
make available certain amenities to Lessee as more particularly described in
Schedule "A." Such services shall be offered to Lessee in conjunction with
services to other lessees of Lessor and there shall be no charge for same.
In addition, provided Lessee is not in default hereunder and provided
the cost thereof does not exceed the Expense Deposit, Lessor shall make
available to Lessee certain other services as more fully described in
attached Schedule "B" ("Schedule B Services"). Schedule B Services shall be
billed monthly and payment for such services shall be due on or before the
10th day of each month. Lessee's Expense Deposit shall be applied against the
cost of supplying Lessee with Schedule B Services or applied as otherwise
permitted under Section 6, and Lessee during the term shall promptly upon
application of any amount of the Expense Deposit toward Schedule B Services
or toward amounts otherwise due pay Lessor the amount necessary to restore
the Expense Deposit to the amount set forth in Section6. In the event that
Lessee fails to make payment for Schedule B Services, Lessor shall, in
addition to the remedies available to Lessor pursuant to Section (, be
entitled to apply the Expense Deposit toward the cost of such services and
shall in addition be entitled to suspend amenities or services pursuant to
either Schedule "A" or Schedule "B" until such time as the Expense Deposit is
restored in full and Lessee has paid all sums due for such services. Schedule
B Services shall be performed at a rate which is then prevailing throughout
the Facility and said rate is subject to adjustment by Lessor upon thirty
(30) days written notice to Lessee. Lessee specifically acknowledges that the
type of telephone service and the number of lines available for the Lessee's
use is subject to reasonable limitations established from time to time by
Lessor, and that such service is subject to termination without notice in the
event of a default by Lessee hereunder.
8. Surrender. Lessee agrees to and shall, on expiration or sooner
termination to this Agreement or of any extended term, promptly surrender and
deliver the Premises to Lessor, without demand, and in good condition,
ordinary ear and tear excepted. Lessor shall have the right to show Lessee's
office(s) during the sixty (60) day period after notice to vacate is
received. Without prior written approval of Lessor, Lessee shall not remove
any of its property from the Premises upon termination of this Agreement, or
at any other time, except during Lessor's normal business hours. In the event
Lessor consents to Lessee's removing property before or after normal business
hours, any expenses incurred by Lessor as a result, including but not limited
to expenses for personnel, security, utilities, and the like, shall be paid
by Lessee.
In the event that Lessee fails to surrender the Premises as provided,
Lessee agrees to pay Lessor, as liquidated damages, a sum equal to twice the
monthly rent and additional charges for services provided to be paid by
Lessee to Lessor for all the time Lessee shall so retain possession of the
Premises or any part thereof; provided, however, that the exercise of
Lessor's rights under this clause shall not be interpreted as a grant of
permission to Lessee to continue in possession.
9. Defaults and Remedies. (a) Lessee shall not allow the rent or any
other payments required to be in arrears more than five (5) days after
written notice of such delinquency, or abandon or vacate the Premises or
cease to operate for business therein or remain in default under any other
covenant or condition of this Agreement for a period on ten (10) days after
written notice. In the event of any such breach, Lessor may re-enter and take
possession to the said Premises and remove all persons and property
therefrom, as well as disconnect any telephone lines installed for the
benefit of Lessee, without being deemed to have committed any manner of
trespass or breach of this Agreement, and in addition, Lessor may also elect
concurrently or alternately to accelerate all of Lessee's obligations
hereunder if permitted under law of the applicable jurisdiction, including
without limitation the rental, direct expenses, and Schedule B Costs, and/or
re-let the Premises or any part thereof, for all or any part of the remainder
of said term, to a party satisfactory to Lessor, at a monthly rental as
Lessor may, with reasonable diligence, be able to secure. Should Lessor be
unable to re-let after reasonable effort to do so, or should each monthly
rental be less than the rental Lessee was obligated to pay under this
Agreement, or any renewal thereof, plus the expenses of re-letting, Lessee
shall pay the amount of such deficiency immediately in one lump sum (if
allowable under law) to Lessor upon demand.
(b) It is expressly agreed that in the event of default by Lessee,
Lessor shall have a lien upon all goods, chattels or personal property of any
description belonging to Lessee which are placed in, or become part of the
Premises, as security for rent due and to become due for the remainder of the
current term, which lien shall not be in lieu of or in any way affect any
statutory Lessor's lien given by law, which shall be cumulative. Lessee
hereby grants Lessor a security interest in all such personal property placed
in the Premises for such purposes. This shall not prevent the sale by Lessee
of any merchandise in the ordinary course of business free of such lien to
Lessor.
(c) In the event Lessor exercises the option to terminate the Agreement,
and to re-enter and re-let the Premises as provided in this Section, Lessor
may take possession of all of Lessee's property on the Premises and sell the
same at public or private sale after giving Lessee written notice of the time
and place of any public sale or of the time and place after which any private
sale is to be made, for such prices and terms as Lessor deems best. The
proceeds of such sales shall be applied first to necessary and proper
expenses of removing, storing and selling such property and then to the
payment of any rent or monies due or to become due under this Agreement, with
the balance if any to be paid to Lessee. All rights and remedies of Lessor
under this Agreement shall be cumulative and none shall exclude any other
right or remedy of law. Lessor is expressly given the right to assign any or
all of its interests under the terms of this Agreement.
(d) In the event any sums owed by Lessee hereunder are collected by law
or through an attorney at law, Lessee agrees to pay all expense of
collection, including maximum amounts allowable by law due as reasonable
attorney's fees.
10. Notices. Any notice under this Agreement must be in writing and must
be sent by certified mail, return receipt requested, or by an expedited mail
service that provided proof of delivery, to the last address of the party to
whom notice is to be given, as designated by such party in writing. Notices
to Lessor must be simultaneously sent to each of the following addresses:
OMNIOFFICES/Denver Tech, Inc. (Lessor's Name)
c/o OMNIOFFICES Management Co., Inc.
Fifth Floor-East
1117 Perimeter Center West
Atlanta, Georgia 30338
and
SAME AS ABOVE
or such other address as Lessor shall designate to Lessee in writing. The
Lessee hereby designates its address (which address must be an address within
the United States, otherwise notice shall be deemed given three (3) days
after deposited with the mail service, regardless of whether or not received)
as:
Polar Molecular Corporation
1175 South Rifle Circle
Aurora, CO 80017
Such notices shall be deemed to be duly given only if mailed by
certified mail, return receipt requested, in a postage-paid envelope,
addressed to the other party at the addresses given above, and in the case of
notices from Lessee to Lessor, only if the address of the Premises is stated
in the notice. If such mail is properly addressed and mailed as above, it
shall be deemed notice for all purposes, even if undelivered.
11. Assumption Agreements and Covenants. The parties acknowledge and
agree that this Agreement is subject and subordinate to the main Building
lease governing the Facility under which Lessor is bound as tenant, and the
provisions of the main lease, other than as to the payment of rent or other
monies, are incorporated into this Agreement as if completely rewritten
herein. Lessee shall comply with and shall be bound by all provisions of the
main lease except that the payment of rent shall be governed by the
provisions of Section 4, and Lessee shall indemnify and hold Lessor harmless
from and against any claim or liability under the main lease of Lessor
arising from Lessee's breach of the Main Lease or this Agreement. Lessor
covenants and warrants that the use of the Premises as a business office is
consistent with and does not violate the terms of the main lease.
12. Furniture and Fixtures. Lessor agrees, at its own cost and expense,
to furnish and to install furniture, fixtures and equipment that are in the
Lessor's sole opinion necessary to provide suitable office facilities for the
Lessee upon such terms and conditions routinely applicable to the facility,
provided that such furniture, fixtures and equipment shall remain Lessor's
property.
13. Assignment and Subletting. No assignment or subletting of the
Premises, this Agreement or any part thereof shall be made by Lessee without
Lessor's prior written consent. Neither all nor any part of the Lessee's
interest in the Premises or this Agreement may be encumbered, assigned, or
transferred in whole or in part either by the act of the Lessee or by
operation of law.
14. Subletting to Other Lessee or Licensee Prohibited. Any provision
herein to the contrary notwithstanding, Lessee shall not sublease any of the
Premises to any person or entity who is currently a Lessee or Licensee of
Lessor or who becomes such at any time during the term of this Agreement.
Upon breach of the foregoing, Lessor, at its option, may cancel this
Agreement, retain Lessee's Deposit, and shall be entitled to recover as
liquidated damages the sum of $5,000.00 for each such breach.
15. Lessor's Liability. Lessor shall not be liable or responsible to
Lessee for any injury or damage regardless of the cause thereof (and
including without limitation any loss of business or other incidental or
consequential damages suffered by Lessee) resulting from the acts or
omissions of Lessor's employees, persons leasing office space or services
from Lessor, or other persons occupying any part of the Building, or for any
failure of services provided, such as water, gas or electricity, or for any
injury or damage to person or property caused by any person, or for Lessor's
failure to make repairs which it is obligated to make hereunder. Lessee
agrees to indemnify and hold Lessor harmless from and against any and all
claims, damages or causes of action for damages (including reasonable
attorney's fees and court costs) brought on account of injury to any person
or persons or property, or loss of life, arising out of the use, operation or
maintenance of the Premises by Lessee. The parties hereby agree that the
foregoing provisions of this Section 15 have been made in contemplation that
all such risk of loss shall be borne by Lessee's insurers pursuant to Section
25 below.
16. Waiver of Breach. No failure by the Lessor to insist upon the strict
performance of any term or condition of this Agreement or to exercise any
right or remedy available on a breach thereof, and no acceptance of full or
partial payment during the continuance of any such breach shall constitute a
waiver of any such breach or any such term or condition. No term or condition
of this Agreement required to be performed by the Lessee, and no breach
thereof, shall be waived, altered or modified, except by a written instrument
executed by the Lessor. No waiver of any breach shall affect or alter any
item or condition in this Agreement, and each term or condition shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.
17. Employment of Lessor's Employees. Lessee recognizes that Lessor has
expended considerable time, effort and expense in training Lessor's employees
so as to provide high quality service to Lessee, and that the hiring by
Lessee of Lessor's present employees or any employee employed by Lessor
within a six (6) month period prior to the offer by Lessee to such employee
would save Lessee, and cause Lessor to expend considerable time, effort and
expense in training and procurement. Lessee further acknowledges that were
Lessee to hire any such employees, Lessor would be forced to expend
additional time, effort and expense in training new employees, the amount of
which cannot be determined with certainty. Should Lessee, during the original
or extended term of the Agreement or for twelve (12) months thereafter, offer
employment to and subsequently employ any employee of Lessor who is or was an
employee of Lessor at any time during the six (6) month period immediately
preceding such offer of employment by Lessee, Lessee shall pay to Lessor, as
a procurement fee, and not as a penalty, a sum equal to forty percent (40%)
of the annual salary last payable by Lessor to such employee or $8,000
(whichever is greater).
18. Rules and Regulations. The rules and regulations attached to this
instrument are made an integral part of this Agreement. Lessee, its employees
and agents will perform and abide by the rules and regulations any any
amendments or additions to said rules and regulations as Lessor may make. In
addition, Lessee, its employees and agents shall abide by all applicable
governmental rules, regulations, statutes and ordinances, failing which
Lessee shall be in default hereunder and shall pay any fines or penalties
imposed for such violation(s) directly to the appropriate governmental
authority or to Lessor, if Lessor has paid such amount on behalf of Lessee.
19. Severability. The invalidity of any one or more of the sections,
subsections, sentences, clauses or words contained in this Agreement, or the
application thereof to any particular set of circumstances, shall not affect
the validity of the remaining portions of this Agreement, or of the valid
application to any other set of circumstances, all of which sections,
subsections, sentences, clauses, or words are inserted conditionally on being
valid in law; and in the event that one or more of the sections, subsections,
sentences, clauses, or words contained herein shall be invalid, this
Agreement shall be construed as if such invalid sections, subsections,
sentences, clauses or words had not been inserted. In the event that any part
of this Agreement shall be held to be unenforceable or invalid, the remaining
parts of this Agreement shall nevertheless continue to be valid and
enforceable as though the invalid portions had not been a part hereof. In
addition, the parties acknowledge and agree (i) that this Agreement has been
fully negotiated by and between the parties in good faith and is the result
of the joint efforts of both parties, (ii) that both parties have been
provided with the opportunity to consult with legal counsel regarding its
terms, conditions and provisions, and (iii) that regardless of whether or not
either party has elected to consult with legal counsel, it is the intent of
the parties that in no event shall the terms, conditions or provisions of
this Agreement be construed against the party which has drafted this
Agreement.
20. General. This Agreement embodies the entire agreement between the
parties relative to its subject matter, and shall not be modified, changed or
altered in any respect except in writing signed by the parties.
21. Time of Essence. Time is of the essence as to the performance of all
covenants, terms and provisions of this Agreement by Lessee.
22. Landlord's Election Under This Agreement. Upon early termination of
the main Building lease, this Agreement shall terminate unless the Building
Landlord under the main lease elects to have this Agreement assigned to the
Building Landlord or another entity as provided in the main lease. Upon
notice to Lessor of the termination of the main lease and such election, (i)
the Agreement shall be deemed to have been assigned by Lessor to the Building
Landlord, or to such other entity as is designated in such notice by the
Building Landlord ("Buildings Designee"), (ii) the Building Landlord or
Buildings Designee shall be deemed to be the Lessor under this Agreement and
shall assume all rights and responsibilities of Lessor under this Agreement,
and (iii) Lessee shall be deemed to have attorned to the Building Landlord or
Building's Designee as Lessor under this Agreement.
23. Execution by Lessee. The party or parties executing this Agreement
on behalf of the Lessee warrant(s) and represent(s) that such executing party
(or parties) has (or have) complete and full authority to execute this
Agreement on behalf of Lessee, that Lessee shall fully perform its
obligations hereunder, and that same shall fully indemnify, defend and save
Lessor harmless from any breach of these warranties and representations.
24. Covenant and Conditions. Each term, provision and obligation of this
Agreement to be performed by Lessee shall be construed as both a covenant and
condition.
25. Mutual Waiver of Subrogation; Casualty; Condemnation. Lessee
acknowledges that it shall be responsible for maintaining such insurance as
Lessee deems necessary to protect against risk of injury or damage to person
or property, including Lessee's property, and that the provisions of Section
15 above are in contemplation thereof. Any fire and extended risk casualty
insurance that Lessee maintains shall include a waiver of subrogation in
favor of Lessor and the Building Landlord, and any fire and extended risk
insurance carried on the Facility by Lessor shall likewise contain a waiver
of subrogation in favor of Lessee. In the event the entire Premises or the
Facility are damaged, destroyed or taken by eminent domain or acquired by
private purchase in lieu of eminent domain so as to render the Premises fully
untenantable and unrestorable in Lessor's judgment, then within ninety (90)
days thereafter by written notice to the other party, either party shall be
able to terminate this Agreement, but otherwise it shall remain in full force
and effect.
26. Compliance with Americans with Disabilities Act of 1990. Lessee
shall, at its own cost and expense, comply with the Americans with
Disabilities Act of 1990, as now or hereafter amended, and the rules and
regulations from time to time promulgated thereunder (hereinafter
collectively referred to as the "Act"). Lessee acknowledges that Lessor shall
have no responsibility with respect to the Premises for complying with the
Act. Lessee hereby agrees to defend, indemnify and hold Lessor harmless from
and against any and all claims, demands, actions, damages, fines, judgments,
penalties, costs (including attorney's and consultant's fees), liabilities
and losses resulting from Lessee's failure to comply with the Act. The
provisions of this paragraph shall survive the expiration or other
termination of this Agreement.
27. Relocation Addendum. Lessor hereby agrees that during the term of
this Agreement, Lessee may relocate the Premises to any other OMNI/REGUS
Facility selected by Lessee (the Facility to which the Premises may be
relocated is hereinafter referred to as the "New Facility" and the relocated
Premises in the New Facility are hereinafter referred to as the "Relocation
Premises") upon the terms and conditions hereinafter set forth in the
"Relocation Addendum."
28. Counterparts. This agreement may be executed in two or more counter
parts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the date first written above.
LESSOR: OMNIOFFICES/Denver Tech, Inc.
By: /s/ ????????
----------------------------------
If a corporation:
LESSEE: Polar Molecular Corporation
By: /s/ ????????
----------------------------------
Title: President/CEO
------------------------------
[ Corporate Seal ]
If an individual or partnership:
LESSEE:
By: _____________________________ (SEAL)
By: _____________________________ (SEAL)
SCHEDULE "A"
Furnished Private Office
Furnished, Decorated Reception Room with Qualified Receptionist
Limited Storage Facilities
Package Receipt in Lessee's Absence
Personalized Telephone Coverage During Office Hours in Lessee's Absence
Mail Receipt and Forwarding
Reasonable Conference Room Usage (for 3 or more people) with VCR and
Audio-Visual Facilities, subject to prior scheduling and use by other lessees
Corporate Identity on Lobby Directory where Available
Listing of Facsimile Numbers on Lessee's Letterhead
Complete Main Facility
Equipment: Small Business Machines
Dictating and Transcription Equipment
Utilities and Maintenance
Reasonable Courtesy Use of Affiliate OMNIOFFICES(R)
Janitorial Service
SCHEDULE "B"
Personal Secretarial Service
Document Storage Library
Word Processing Service
Office Assistant/Porter Service
Messenger Service
Reproduction Facilities
Facsimile Transmission
UPS Shipping Service
Freight Express Services
Package Handling/Boxing and Wrapping Facilities
Specialized Equipment and Furniture
Purchasing Services -- Printing and Office Supplies
Paging Services
Binding Services
Local and Long Distance Telephone Equipment and Service
Travel and Entertainment Arrangements
Catering Arrangements
Overnight Letter/Package Arrangements
Voice Mail
Translation Service
REBATE ADDENDUM
This addendum shall be attached to and become a part of that certain
agreement for office space dated January 15, 1997 between OMNIOFFICES/Denver
Tech, Inc. as Lessor and Polar Molecular Corporation ("the Lessee").
In consideration of the execution of this lease by Lessee and provided that
Lessee is not in default hereunder or under any other agreement with Lessor,
or any parent, subsidiary or affiliate corporation of Lessor, Lessor hereby
agrees to rebate $ 8,028.00 of rent otherwise due hereunder pursuant to the
following schedule provided, however, that the entire amount of rent rebated
pursuant to this Addendum plus interest thereon at the rate of 12% per annum
shall be repaid to lessor should Lessee breach this lease. At the end of the
schedule listed below, this addendum shall become null and void.
Month Amount
-------------------------------
January 15, 1997 334.50
February 1, 1997 669.00
March 1, 1997 669.00
April 1, 19987 669.00
May 1, 1997 669.00
June 1, 1997 669.00
July 1, 1997 669.00
August 1, 1997 000.00
September 1, 1997 669.00
October 1, 1997 669.00
November 1, 1997 669.00
December 1, 1997 669.00
January 1, 1998 334.50
All other terms and conditions of the above referenced lease agreement remain
in effect.
In Witness Whereof, lessor and Lessee have caused these presents to be duly
executed as of the date first written above.
Accepted by Lessor: Accepted by Lessee:
OMNIOFFICES/Denver Tech, Inc. Polar Molecular Corporation
By: /s/ ?????? By: /s/ ?????
------------------------- -----------------------
Date: 2/19/97 Date: 1-28-97
----------------------- ---------------------
August 21, 1997
Mr. Mark Nelson
4600 South Ulster Street
Suite 700
Denver, CO 80237
Dear Mr. Nelson
RE: Agreement between OmniOffices Group, Inc. successor in interest to
OMNIOFFICES/Denver Tech, Inc. and Polar Molecular Corporation dated January
15, 1997 (the "Agreement")
The following shall amend the Agreement:
1. It is agreed that as of September 1, 1997, Polar Molecular Corporation
will occupy office number 742 instead of office number 771. In consideration
for the execution of this Addendum and the change in offices effective
September 1, 1997, the annual rent under the Agreement will be increased to
forty five thousand six hundred sixty dollars and no cents ($45,660.00),
payable in equal monthly installments of $3,805.00 with an additional
security deposit of $460.00 and an additional expense deposit of $460.00 for
office number 742. Escalation as provided for in the above referenced
Agreement will remain in effect.
2 Provided that Lessee is not in default hereunder or under any other
agreement with Lessor, or any parent, subsidiary or affiliate corporation of
Lessor, Lessor hereby agrees to rebate $1030.50 of rent otherwise due
hereunder pursuant to the following schedule; provided, however, that the
entire amount of rent rebated pursuant to this Addendum plus interest thereon
at the rate of 12% per annum shall be repaid to Lessor should Lessee breach
this Agreement. At the end of the rebate schedule listed below, this rebate
schedule shall become null and void.
MONTH AMOUNT
----- ------
September 1, 1997 $229.00
October 1, 1997 $229.00
November 1, 1997 $229.00
December 1, 1997 $229.00
January 1-15, 1998 $114.50
All other terms and conditions of the above-referenced Agreement will remain
in effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused these presents to be duly
executed as of the date first written above.
ACCEPTED BY LESSOR: ACCEPTED BY LESSEE:
OmniOffices Group, Inc., successor in Polar Molecular Corporation
interest to OMNIOFFICES/Denver Tech, Inc.
By: /s/ Barbara S. Parker By: /s/ Jerry R. Allsup
------------------------------------- ---------------------------
Date: 9-22-97 Date:
----------------------------------- -------------------------
This letter constitutes an offering and is not binding on either party until
such time both parties have executed this document.
POLAR MOLECULAR CORPORATION
1997 EMPLOYEES' INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the POLAR MOLECULAR CORPORATION 1997
EMPLOYEES' INCENTIVE STOCK OPTION PLAN (the "Plan") is to promote the
interests of POLAR MOLECULAR CORPORATION (the "Company") by affording an
incentive to certain key officers and management employees to remain in the
employ of the Company and to use their best efforts on an ongoing basis over
a lengthy period of time on behalf of the Company; and to further aid the
Company in attracting, maintaining and developing management personnel of a
caliber required to ensure the Company's continued success, by offering such
current and prospective officers and employees an opportunity to acquire or
increase a proprietary interest in the Company through the grant of options
to such individuals to purchase the Company's common stock ("Options"),
pursuant to the terms of the Plan.
2. Shares Subject to Plan.
a. The shares to be delivered upon the exercise of Options granted
under this Plan shall be made available, at the discretion of the Company's
Board of Directors, from the authorized but unissued shares of the Company's
common stock ("Stock").
b. Subject to adjustments made pursuant to Section 14 hereof, the
aggregate number of shares which may be issued upon exercise of all Options
to be granted under the Plan shall not exceed 1,500,000 shares of Stock.
c. In the event that any Option granted under the Plan shall expire,
terminate or lapse without being exercised in full, the shares theretofore
subject to such expired, terminated or lapsed Option shall become available
for further grants of Options without any requirement to increase the
aggregate number of shares authorized for grant of Options under the Plan.
d. More than one Option may be granted to any Optionee (as
hereinafter defined) under the Plan.
3. Option Agreements.
a. Each Option under the Plan shall be evidenced by an Option
Agreement, in the form of a letter of grant or otherwise, which shall be
signed by an officer of the Company and by the employee, which shall contain
such provisions as may be approved by the Committee (as defined in Section
4). Upon counter-execution of the Option Agreement, an employee to whom a
grant of Option shall have been made shall become an optionee and hold such
Options ("Optionee").
b. The Option Agreements shall constitute binding contracts between
the Company and the Optionee, and every Optionee shall, upon acceptance of
such Option Agreement, be bound by the terms of this Plan and of the Option
Agreement.
c. The terms of the Option Agreement shall be in accordance with the
Plan, but may include additional provisions and restrictions which are not
inconsistent with the Plan.
4. Administration. The Company's Board of Directors shall appoint a stock
Option plan committee (the "Committee") to administer the Plan, which shall
consist of three persons to serve at the pleasure of the Board of Directors.
The Committee shall have full power and authority to construe, interpret and
administer the Plan, and may from time to time adopt such rules and
regulations for carrying out the Plan as it may deem proper and in the best
interest of the Company. Subject to the terms, provisions and conditions of
the Plan, the Committee shall have the power and authority (i) to select the
key employees to whom Options shall be granted, (ii) to determine the number
of shares subject to each Option, (iii) to determine the time or times when
Options will be granted, (iv) to determine the Option exercise price of the
shares subject to each Option, (v) to determine the time or times when each
Option may be exercised, including the expiration date thereof (the
"Expiration Date"), (vi) to fix such other provisions of the Option Agreement
with any Optionee which the Committee may deem necessary or desirable,
consistent with the terms of this Plan, and (vii) to determine all other
questions relating to the administration of the Plan. The interpretation of
any provisions of the Plan by the Committee shall be final, conclusive, and
binding upon all persons, including any Optionee, and the Board of Directors
shall place into effect the determinations of the Committee.
5. Eligibility. Key employees of the Company, including officers and
directors who are salaried employees, shall be eligible to receive Options.
The fact that an employee has been granted an Option under this Plan, subject
to certain time or times when any Option may be exercised, shall not in any
way affect, limit or qualify the right of the Company to terminate the
employment of such employee at any time. The existence of this Plan does not
limit the Company's right and power to grant Options not under this Plan for
any lawful corporate purpose, including grant of Options to key employees.
Key employees to whom Options shall be grantable under this Plan shall be
selected by the Committee, at the Committee's sole discretion, based upon the
benefits the Company has received or hopes to receive from the contribution
of the Optionee(s).
6. Option Exercise Price. The price at which shares of stock may be purchased
under an Option granted pursuant to this Plan shall be determined by the
Committee, but shall not be less than one hundred percent (100%) of the fair
market value of such shares on the date that the Option is granted by the
Committee. The fair market value of such shares shall be the last sale price
on the date prior to the date on which any Option is granted, at any time
when the price of the Company's shares is quoted or listed by any electronic
service of the National Association of Securities Dealers or any national or
regional stock market recognized as a self regulatory organization by the
Securities and Exchange Commission. In the event that the Company's shares
are not so listed or quoted, the fair market value of such shares shall be
determined by the Committee, in accordance with procedures established by the
Committee. For the purposes of this Plan, the fair market value of shares
subject to Options shall, upon the good faith determination of the Committee,
be deemed conclusive. The Option exercise price shall be subject to
adjustments in accordance with the provisions of Section 13 herein.
2
7. Vesting and Termination of Employment.
a. The rights of the Optionee under each Option granted pursuant to
the Plan shall be 100% vested as of the date of grant, but shall be
exercisable only in accordance with Section 8 hereof.
b. Upon termination of employment for any reason, including death,
i. If the Optionee was not entitled to exercise the Option on
the effective date of termination prior to the effective time thereof, such
Option shall lapse and terminate immediately.
ii. If the Optionee was then entitled to exercise the Option,
that portion of his or her Option which remained unexercised as of the
effective date of termination shall lapse and terminate if not exercised by
the earlier of:
(1) The Expiration Date of the Option, at which time the
unexercised portion of the Option shall lapse and terminate if not
theretofore properly exercised; or
(2) Ninety (90) days after the occurrence of a Liquidity
Event (defined by Section 8, below), at which time the unexercised portion of
the Option shall lapse and terminate if not theretofore properly exercised;
or
(3) Ninety (90) days after his or her termination of
employment, at which time the unexercised portion of the Option shall lapse
and terminate if not theretofore properly exercised;
In any case where an Optionee is subject to the annual $100,000 limitation
described in Section 10 below, and his rights would otherwise expire under
Section 7(b)(ii)(2) or (3), his or her Option(s) shall nevertheless remain
outstanding until three (3) months after Optionee is first entitled to
exercise each $100,000 annual installment thereunder, at which time that
portion of the Option relating to the unexercised annual installment shall
lapse and terminate if not theretofore properly exercised. Notwithstanding
anything herein, however, no Option shall be exercisable after such Option
would terminate under the terms of the Option Agreement, regardless of
continued employment of the Optionee.
8. Exercise of Options.
a. The period during which each Option may be exercised shall be
fixed by the Committee at the time the Option is granted, but such exercise
period shall expire not later than ten (10) years from the date the Option is
granted.
3
b. Each Option granted under the Plan shall, following the
occurrence of a Liquidity Event, as herein defined, immediately become
exercisable. The following shall constitute "Liquidity Events:"
i. An initial public offering by the Company;
ii. The sale of at least a majority of the then issued and
outstanding shares of the Company by the Company; or
iii. A merger or reorganization of the Company in which the
Company is not the surviving entity.
c. No shares shall be delivered pursuant to any exercise of any
Option until the requirements of law and regulation deemed applicable thereto
by the Committee shall have been satisfied and full payment thereof in good
United States funds shall have been tendered to and received by the Company.
No Optionee or his or her legal representative, legatee or distributee, shall
be deemed to hold any shares subject to any Option unless and until the
certificate(s) for the same shall have been issued at the direction of the
Committee.
9. Ten Percent Owners. Notwithstanding the provisions of Section 5 above,
the following terms and conditions shall apply to Options granted hereunder
to a "10 percent owner." For this purpose a "10 percent owner" shall mean an
Optionee who, at the date of grant of any Option, owns stock representing
more than ten percent (10%) of the total aggregate number of shares of all
classes of the Company's stock, or of any subsidiary thereof. With respect to
a 10 percent owner:
a. The price at which the shares of stock may be purchased under an
Option granted pursuant to this Plan shall be not less than 110% of the fair
market value thereof on the date of grant, determined in the manner
prescribed in Section 6 above; and
b. The period during which any such Option may be exercised, to be
fixed by the Committee pursuant to Section 4 above, shall expire not later
than five (5) years from the date the Option shall have been granted.
10. Annual Limit on Grant and Exercise. Options shall not be granted to any
Optionee pursuant to this Plan, the effect of which would be to permit such
person in any calendar year to have the first right to exercise Options to
purchase shares having a fair market value in excess of $ 100,000 as of the
date of grant. An Optionee hereunder may exercise Options for the purchase of
shares valued in excess of $ 100,000 (determined at the date of grant) in any
calendar year, but only if the right to exercise these Options shall have
first become available in prior calendar years.
11. Other Terms and Conditions. Any Option granted hereunder may contain
additional terms, not inconsistent with the terms of this Plan, which are
deemed necessary or desirable by the Committee, which together with the terms
of the Plan, shall constitute the Option as an "Incentive
4
Stock Option" within the meaning of Section 422A of the Internal Revenue Code
and the Treasury Regulations promulgated thereunder.
12. Transferabili1y of Options. An Option granted under the Plan may not be
transferred except by will or the laws of descent or distribution, and during
the lifetime of the employee to whom granted may be exercised only by that
employee.
13. Capital Adjustments Affecting Stock. In the event of a capital adjustment
resulting from a stock dividend, stock split, reorganization, merger,
consolidation, or a combination or exchange of shares, the number of shares
of stock subject to this Plan, the number of shares under all Options, and
the identity of the issuer, shall be adjusted consistent with such capital
adjustment. The price of any share under Option shall be adjusted so that
there will be no change in the aggregate purchase price payable under
exercise of any such Option. The granting of an Option pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reorganizations, reclassifications, or changes of its capital or
business structure, or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business assets or any security of the
Company, including its stock. No grant of any Option under this Plan shall
have the effect of giving any holder of such Option any pre-emptive right to
maintain the percentage interest in share ownership of the Company reflected
by the underlying Shares.
14. Amendments, Suspension or Termination of the Plan. The Board of Directors
of the Company shall have the right, at any time, to amend, suspend, or
terminate the Plan in any respect which it considers to be in the best
interest of the Company, provided, however, that no amendments shall be made
in the Plan which:
a. Alter the rights of any Optionee, without such
Optionee's written consent, with respect to any Option theretofore not
terminated in accordance with its terms or the terms of the Plan, whether or
not the same shall then be currently exercisable;
b. Alter the termination date of any Options theretofore granted
under the Plan, to the effect that had such termination date been stated at
the date of grant, such termination date would have exceeded the permissible
term of such Options under the Plan;
c. Alter the exercise price of any Options theretofore granted under
the Plan, to the effect that had such exercise price been stated at the date
of grant, such exercise price would have been less than the applicable
minimum exercise price for Options granted on such date under the Plan;
d. Alter the provisions applicable to the grant of Options in excess
of $100,000 in fair market value initially exercisable in any one calendar
year; or
e. Extend the termination date of the Plan.
5
15. Effective Date, Term of Plan and Approval. The Plan has been
adopted by the Board of Directors as of December 31, 1997, and the Plan and
all theretofore granted Options under the Plan shall be effective only upon
approval thereof at the next annual meeting of the Company's shareholders.
The Plan will terminate on December 31, 2006, and no Options shall be granted
after such date, unless the Plan is earlier terminated by the Company's Board
of Directors. Any Option granted prior to the termination of the Plan is
exercisable in accordance with its terms as set forth herein and in the
Option Agreement applicable thereto. The Plan and all Options granted
pursuant to the Plan are subject to all requirements of law and regulation
under the laws of the State of Colorado and the United States of America.
Notwithstanding any other provision of the Plan or the Option Agreement
applicable to any grant of Options under the Plan, no Optionee or holder of
an Option shall be entitled to exercise any Option if such exercise or the
issuance of shares in respect thereof would constituted a violation by the
holder or the Company of any provision of law or regulation.
Dated: December 31, 1997 POLAR MOLECULAR CORPORATION
By: /s/ Mark L. Nelson
--------------------------
Mark L. Nelson, President
6
EXHIBIT 21
Subsidiary of the Registrant
The only subsidiary of Biorelease Corp. is Biorelease Technologies, Inc.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
inclusion of our report dated September 20, 1999, on the consolidated
financial statements of Biorelease Corp. and Subsidiary for the year ended
June 30, 1999, in its form S-4 Registration Statement, and to the reference
to us under the caption "Experts" contained in the Prospectus.
Ferrari & Associates, P.C.
Lithchfield, New Hampshire
January 17, 2000
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
inclusion of our report dated January 15, 2000, on the consolidated
financial statements of Biorelease Corp. and Subsidiary for the year ended
June 30, 1998, in its form S-4 Registration Statement, and to the reference
to us under the caption "Experts" contained in the Prospectus.
Ferrari & Associates, P.C.
Lithchfield, New Hampshire
January 17, 2000
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement and Prospectus of
Biorelease Corp. of our report dated October 18, 1999, accompanying the
financial statements of Polar Molecular Corporation contained in such
Registration Statement, and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Prospectus.
HEIN + ASSOCIATES LLP
Denver, Colorado
January 13, 2000
Consents\BioreleaseD99
